Last week, I spent time at SIBOS, which is the world’s largest banking conference. Whilst there, I participated in Innotribe, the stream SIBOS dedicates to matters of innovation in financial services.
Something interesting was very evident.
Basically, the crowd settled into two camps. On the one hand were those that predicted that innovation in financial services – particularly those driven by new channels (mobile) and new business models (social, etc) were about to overthrow banking as we know it.
On the other, were those who were interested in new models, new distribution and new ways of doing things, but were highly sceptical that anything very much was about to radically change in the short term.
I have to admit, though I was once a bank-innovator full time, I am in the latter camp.
I simply don’t see the makings of any major technonic change happening in banking.
Here is why: innovations that change the world don’t happen overnight. Breakthroughs generally don’t make money for the people that invent them. And the more traditional and hidebound and industry, the more resilient to radical changes it is.
Banking is pretty resilient. As I said at SIBOS in a back meeting somewhere, banking has the advantage that nation-states will prop it up even if things go badly wrong. That’s what we saw in the recent financial crisis, where government everywhere stepped in to save banks from themselves.
Banks, you see, are too important to be allowed to fail, no matter how cool the disruption that (may) threaten them. I cannot see that changing for any reason in the short term, and, indeed, it is not changing.
Despite the crisis, despite an economic outcome almost too terrible to forgive, many banks are back making profits like nothing ever happened.
But there is another reason I think any prediction of the end of banking is vastly premature.
The financial crisis should have been a golden opportunity for new business model financial start-ups to make a killing.
Peer to Peer lending, which is the practice of facilitating loans between people without the intermediary of a bank is a case in point.
During the crisis, banks stopped lending.
Ergo, P2P should have been a winner.
Except, for some reason, P2P hasn’t really taken off. Even when it had a perfect storm of factors that should have made it a hit with consumers.
I think new models will be important eventually. In, maybe, a couple of decades.
That’s how entrenched and established the banking system is. Banks themselves will need to allow the models to change before they really will.
The point I am trying to make, I think, is industries do not change overnight. Even when it looks like a disruption has occurred in a short time frame, there is actually a long history of factors that led to the appearance of an overnight change.
Those factors are bubbling away behind the scenes in banking. It just hasn’t been happening for long enough for the changes to show up in any spectacular way.