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Automation and machine learning are now the driving forces changing the world’s leading economies. The so-called neo-banks, fintech companies, apps, digital platforms or tech giants such as Amazon, Googleand Apple, even telecom operators, now threaten to dismantle the value chain of traditional banking piece by piece.
Technology, disintermediation and advanced automation thanks to machine learning are the ingredients of a perfect storm that is not being talked about enough, but that is spreading panic throughout the banking sector.
The challenge the banking sector faces doesn’t come from light-on-their-feet startups that appeal to certain customer segments such as frequent travelers, with banking licenses issued in the forward-looking Lithuania, or from Google now offering checking accounts, or from the appearance of new models, or imaginative brands that are attracting venture capital and investors. All of which some regulators are trying to avert by scaring us with stories about the risks we face if the tech giants take over. The problem for the banks is that we’ve reached the point where anyone can consider setting up a bank.
The problem is that it’s getting hard to make money from banking amid growing automation and transparency, but it does offer many interesting possibilities as a complement to other businesses, which in addition, in many cases, can extrapolate the trust they generate in their customers to push out the traditional banks and their battered image. After all, why should the traditional banks be making so much money when they do so little for us?
These banks are now an endangered species, their job progressively absorbed by consumer companies that offer credit to their customers, by universities that invest in their students and manage their savings and transactions, by investment specialists with very light structures and minuscule commissions, or by online companies with an impeccable reputation for customer service. Automation, which started out replacing low-level positions in banking and investment, are increasingly taking over the best-paid jobs in finance.
In short, there are more and more predators with their eye on banking services, aware that they can do things better than the traditional players, which despite their efforts to cut costs, still have huge payrolls and property portfolios. It’s never been easier to offer specialist services: just set up a startup, put together a value proposition that sounds attractive to certain customer segments, and let the media and word of mouth do the rest. Trust issues? For many banking services, a company can be put to the test over time without too much risk, such as those parents who send their children on Erasmus courses with neo-bank cards they’ve never seen advertised, but which do the job better than traditional ones. Sometimes people turn to the new banking players because they’re fed up with traditional banking. This may not be the case with all customer segments, but it’s a growing phenomenon.
Which is better, to watch how the neo-banks, fintech companies and the like eat away at your different customer segments, or realize that the future is that the services you offer are going to be matched by companies of other types, from outside the banking business and that simply see it as an opportunity to offer more flexibility or better conditions to their customers, while stabilizing their cash flow in the process?
If you work in banking, you need to think about training to do something else. There are fewer and fewer sacred cows, and these kind of disruption dynamics wait for no one.