Banking is at a crossroads against its own will, facing threats from Brexit regulation, from Trump – and continued change from social and technological evolution. Disruption is no longer on the horizon, it is on every financial institution’s doorstep. These are my predictions for the banking industry in 2017.
Tech giants to continue encroaching on financial territory, with a significant land grab to be made by ‘BigTech’.
The ability of data to make trade decisions will allow global tech giants to disrupt financial services on a scale fintech’s can only dream of. Tech giants will make significant steps towards becoming lending giants. As Fintech companies continue to be snapped up, and in many cases cultivated under the watchful eye of incumbents, Tech giants will iterate on existing services, such as Facebook’s ability to send money to friends, and will build a financial capability that doesn’t rely on third parties, such as PayPal. This will set the foundation for a highly disruptive credit model that, unlike incumbents, isn’t saddled by legacy systems.
A bleak time for bankers, with job security at an all-time low.
In 2017, there will be hundreds of thousands of job losses in financial services, starting with Italy’s banking crisis, spreading across Europe and into America. ING shed 7,000 last month and the trend will continue as automation from tech firms and incumbents, combined with ready access to big data will lead to job losses. Automation, combined with a perfect storm of regulatory costs, negative interest rates, and pressure margins means that Clydesdale and Deutsche are the first in what will be a long line of banks announcing job losses. The good news is that only the best talent will remain and banks will still have a huge resource pool of great minds that they can utilise to stay ahead of the curve.
The social cost of the ‘fourth industrial revolution’
Credit will be readily available for consumers. A combination of stagnating wages, higher cost of living and the ability of the financial institutions to make instant lending decisions based on a wealth of face value data will lead to increased personal debt. The opportunity here is to make products and services that recognise this and benefit the customer – hopefully, the reality won’t be an increase in market share to payday lenders.
Blockchain to go mainstream.
2017 will see a large influx of Investment banks and capital markets firms implement distributed ledger technology to change the settlement model for securities. Far from being the (most famous) disruptor that it is perceived as Blockchain will actually be an enabler for investment firms. It will drive down costs, create a more efficient back end and drastically reduce risk and potential for cyber crime. Blockchain is not a ‘disruptor’, but it will be revolutionary.
Innovation efforts will increase
All of the above will lead to a huge refocus and increased funding for innovation efforts – a forced and necessary switch away from a risk-averse culture. More companies will follow Aviva’s model, re-imagining their culture and their approach from a traditional financial company to a technology led company. Ashok Vaswani, Head of Barclays UK agrees that the traditional boundaries of financial services are changing; “If you aren’t eating someone else’s lunch, you are doing it wrong. We are technology companies with a balance sheet.”
These are, of course, deliberately brash and bold predictions designed to stimulate debate. Although nothing here is overly outrageous and many predictions are already in motion – like the agile and innovative approach we want to see from financial services, many of these predictions are iterative. But it isn’t all doom and gloom – as we gain slow clarity on what Brexit will actually mean, (besides Brexit) markets should recover and there may not be a further effect on European banking jobs. Inga Beale, chief executive of Lloyd’s has already said that the loss of EU passport rights and automatic access to the single market may not lead to serious job losses as initially feared.
As technology and consumer habits rapidly change how consumers and small business manage money, access further capital and grow, 2017 will be the year where incumbent financial institutions are forced to take notice and to adapt. A truly bold prediction would be to guess which banks will still be running strong in 2020, and which will have failed to keep up…