Is banking approaching an 'Uber moment'?
Banks are facing a degree of disruption similar to that created by Uber in the taxi industry. That was the message from Antony Jenkins, former CEO of Barclays Banking group and entrepreneur, founder and CEO of FinTech start-up 10X, at a recent ICAS event in London.
Jenkins shared his thinking on the state of banking today, how technology is going to dramatically impact the industry and some “bolder ideas” on the effect of technology on the rest of the economy.
The former Barclays CEO said that despite almost a decade having past since the global financial crisis hit the industry in 2008, many would argue that little has changed. Firms are still being fined billions, customer service ratings levels remain woefully low, complaints are high and shareholder returns are small.
However, he said, society needs a fair, cost-effective, efficient banking sector despite customers often considering financial services as a “necessary chore”. Indeed Jenkins said: “For society an effective and fair banking system is a necessary condition for sustained and viable economic growth.”
Jenkins said he would be “quite depressed” about the dystopian picture of the banking sector were it not for one factor: technology.
He said that we are approaching an “Uber moment” where technology can create a very “significantly better customer experience and in doing so can disrupt the existing providers within the industry, effectively hollowing out the economics of the incumbents”.
This change, he said, was driven by major improvements in the capabilities of technologies and a reduction in technology costs. “If there is one thing to take away from this speech it’s: ‘spend a little bit of time understanding what’s going on with the underlying technologies’.”
The phases of technological transformation
With the arrival of artificial intelligence, natural language and mobile and distributed ledger, we are now at a point, Jenkins said, where we can see disruption in the industry. In his own business, 10X, the ability to set up an enterprise in a cloud structure took a matter of weeks. “It would take years to build that on the old technology,” he said.
Jenkins envisages the technological transformation on the financial services industry happening in three overlapping phases.
In the first phase, which will run from three to five years, – where we are now – we see the launch of 1000s of FinTech start-ups fuelled by plentiful venture capital money and human capital attracted to the sector. Across small business student lending, foreign exchange, peer-to-peer lending and foreign commerce there is intense activity.
The incumbents, until recently ignoring the phenomenon, have recently upped their game by setting up accelerator and incubator programmes, offering mobile banking and establishing partnerships with FinTech. But they are hampered by their legacy and structure, and an “intense cultural resistance to change”.
In the second phase – between now and 10 years ahead – Jenkins said he sees some but not all FinTechs gaining traction and stealing customers from the traditional banks. “We know from other areas of our lives that we only change behaviour when things are significantly better. For those that can deliver a 10 times better experience, those will be the winners.”
At this stage the incumbents will struggle because they are still dealing with regulatory change, but losing revenue to FinTech and will therefore have to go about further cost cutting, resulting in job losses and branch closures. Jenkins expects banks to fragment leaving behind a “zombie core”.
“I estimate that as much as 20 to 50% of jobs and up to half of branches will go,” he said.
In the third and final stage, which will start around 2022 and will last 15 years, new technologies such as AI and distributed ledger will help create a radically different banking system with the potential to eliminate the role that banks play in intermediation, not just of payments but of saving and lending and capital raising too.
Despite the radical transformation over the next 15 years, incumbent banks will not entirely disappear, unless they completely ignore technology changes as Kodak, Nokia and Blockbuster did. Those stories should be a prescient warning for anyone still resisting change in the industry.
London, 23 February 2017
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