Back in 1994, Bill Gates said that banking is necessary, and banks are not. “We are on the cusp of a major shift”, we often hear. The new technologies are finally coming and the society is ready to embrace them. So how does that change all the financial services landscape in the future?
Society asks for what it demands in a particular moment, and we are the masters of how these innovations are implemented in the real world. The impetus and ability for innovation and change are driven by the society: its needs, resources and perhaps most poignantly, its ethos.
The stars of discovery, innovation and integration are rarely ever aligned, especially in finance. A major change is afoot in the banking industry with the dawn of digital revolution driven by new technologies, especially the smart phone.
All of this adds up to some pretty interesting changes. The application of “First Principles Thinking” in financial services means that the traditional models we’ve thought of as the core architecture of banking are being replaced with new values for digital experiences.
Here are my four predictions for banking by 2030
2bn enters financial services with digital bank accounts
Look at our core bank account. In fact, on that basis of the day-to-day bank account, about two to three billion people will come into the financial services between 2010 and 2030. Nearly 95 percent of those will have never visited a bank branch. They will get access to a basic value store on a mobile phone already. Since the creation of the smartphone, 1.4bn people have come into the financial services ecosystem without ever visiting a bank branch (800 million alone in India and a similar number in China.)
Drastic drop in bank branch visits
In the next decade, the bank account itself will be considered an artefact that’s in the cloud or on your phone and not a physical artefact you got from a bank. The way we think of a basic bank account of value store will have changed by 2030. The daily interactions with financial services will be conducted on a digital basis. More people will use digital access to financial services, that will largely hugely reduce visits to all of the branches and all of the human advisers in the world to null.
50% of portfolio managed by robo-advisors
If one wants to grow its business in the future, it has to be based on digital onboarding, digital relationships and digital engagement. One cannot scale a business of the future based on humans. By 2025, from an advice perspective, more people get day-to-day advice through an artificial intelligence on their finances than from a human. By 2030, it’s more than possible that automated asset management where robo-advisors will be managing will be the same size as those managed by human portfolio managers.
Ant Financial as the world’s largest financial institution
If we were Steve Jobs or Jack Ma, we did probably say, we’d start from scratch, we use “first principles thinking” because the fastest scaling financial services organizations in the world today are digital. That enables them to scale up very rapidly. And as a result of that, digital bank like Ant financial are going to be worth twice what ICBC is worth, making them the biggest financial services organization in the world by 2030.
In moving forward, we are always on the edge of embracing or rejecting change. Retrospectively, we can probably admit that we have sometimes rejected ideas that are now widely adopted simply because they sat outside of our comfort zones.
Every single one of us spends a significant amount of our day wondering and questioning the world around us. Why are there so many coffee shops in this building, is there a more efficient way to disseminate information to my clients, will I live to see a sustainable settlement on Mars? With a strong sense of social need, some of our most heartfelt ideas find themselves on repeat in our minds.
Our innate inquisitiveness, teamed with the right resources (capital, materials, skilled personnel, networks for instance) will see the ideas that only existed in our minds worked on and even realized.
However, enabling both our ideas and the resources available to us is our ethos. Are we receptive to new ideas and methods, and are we willing to be active contributors to an ecosystem of innovation and change? Especially so in highly regulated industry such as banking and finance, initiating a new system or even simply presenting an upgrade to an existing one can be a strong deterrent to many, because of the hassle and potential failures involved in doing so. Yet, so much that we enjoy today may never have come to life if the men and women leading the charge had stopped at merely having an idea.
About the Author:
Rudy Lim was formerly the Head of Fintech at Singaporean bank DBS. Over the past decade, Rudy has encountered entrepreneurs at all stages of growth, both locally and globally, in his dual capacity as investor and mentor. He stands firmly by the notion that technology should be used to create value for society. Rudy’s role at DBS allowed him to further this notion. In order to disrupt traditional means of banking and maintain DBS’ foothold as the leading bank in the region, he helped lead DBS’s mission to integrate FinTech solutions into DBS’ core business. Prior to joining DBS, Rudy was with Singapore Press Holdings (SPH) as a venture capitalist and dealt with strategic innovations. There, he worked closely with media startups to develop new business models and generated fresh revenue streams across SPH’s extensive range of media and engagement platforms. FinTech Guru invites opinion pieces on big-picture changes occurring at the intersection of tech and finance.