Bankers get bad press, few people admire them, but they have only themselves to blame. Now that their future looks bleak, nobody has much sympathy. Industries have come and gone over the generations; new inventions and smarter technologies have seen to that – yet banking has survived thus far. But surely not for much longer!
The old adage goes; “Give the man a gun and he’ll rob a bank – whereas give him a bank and he’ll rob everyone.” We accept it’s a harsh summation but modern banking is far, far removed from the socially-enabling benevolence of former years. It kept savers happy by paying attractive deposit rates and it used their funds to lend to their neighbours for worthwhile community initiatives at a reasonable margin. Banking today is dominated by peripheral activities in complex derivatives that offer higher potential rewards but at crazy risk levels.
Many industries have been scuppered for not moving with the times. Banking needs to be careful that it evolves in step – otherwise it will become defunct. Over the years, banks have been all about bricks and mortar – fancy buildings to house their offices but also hard assets to hold as collateral in case of bad debts. How times have changed!! The most important assets in the modern world are data and banks are not the lead controllers of this valuable commodity.
Technology companies have all the data that a bank could ever need. They are in a position to determine very accurately whether individuals will repay or default. They see real-time data from all sorts of angles – while banks lazily rely on the individuals’ past credit records. Tech companies are smart. They don’t want to morph into old-style banks. They are happier cherry picking the juicier bits of the money transmission systems that banks think they control. Trust used to play a significant role; now digital bits of money and flexible bits of plastic are all the rage.
Regulators are worried. They see themselves as guardians of the monetary system and protectors of consumers. However, more and more financial transactions are taking place in the cyber world that bypasses the so-called monetary system altogether – and, therefore, not within regulatory reach. Hungry for a piece of the action, and under the pretence of tackling money-laundering and other financial crimes, the world’s financial regulators are keen to promote their own version of digital money.
In their new world order, regulators will assume greater control over the data that now belongs in the hands of tech companies. This level of control scares some commentators but their concerns seem oblivious to the power wielded by data controllers at the moment. The ultimate losers in this new evolution are the traditional banks with their outmoded ways of conducting business.
Regulation holds the key. The likes of PayPal and countless other money platforms are poised to exploit our desire for digital finance. In collaboration with regulators these data platforms will likely achieve their aims at the expense of old-time bankers.