Banks as we know them. Automation will come and level

Contrary to some opinions, this sector is not rigid at all and is not subject to change. The banking industry has undergone a number of upheavals over the past few decades, from the introduction of machines for withdrawing and depositing deposits to the introduction of payment cards, electronic money and online banking. These were changes whose magnitude is sometimes underestimated.

Nevertheless, banks, as institutions and enterprises providing a certain range of services, exist and work safely. They are still very reliable places where we keep or borrow money from them. She still hasn't managed to tarnish her image and position wave of popularity of cryptocurrencieswhich allow you to safely store and transfer funds (protection against theft, but not loss of value).

However, if a way was found independent of financial institutions and traditional parities and similar digital "coins", who knows? The very idea of ​​a net-backed currency that is not transferred to any bank or similar fiduciary and flows without intermediaries in such transactions is a serious blow to the very foundation of existence. traditional financial institutions. In addition, as you know, these institutions earn on all sorts of commissions and exchange rate differences within the country. kryptowaluty are missing.

So you can pay between people from two different parts of the world, without any commissions, border, customs, tax and any other barriers. Thus, the role of not only banks, but the entire system as a whole is undermined. This is a broader topic that we will cover in another article in this issue of MT.

Returning to the banks, however, these institutions maintain the stability of currencies, and cryptocurrencies are not tracked by anyone, hence the “wild” nature of their quotes. The fate of banks is connected with the fate of traditional money. If there is a deviation from well-known and proven structures, of course, banks will have problems. talking about dollar twilight, the introduction of a digital Chinese currency (which is unlikely to go unchecked).

On the other hand, it is MasterCard, an organization that does not fight banks, on the contrary, begins to accept payments in cryptocurrency. JP Morgan provides cryptocurrency loans on Ethereum, and China is working on a “cryptocurrency” based on a central bank. So, it seems to say that the world of banking and cryptocurrencies are irreconcilable contradictions is a big exaggeration. However, the potential emergence of an alternative digital currency in the mainstream largely negates the role of banks and theoretically poses a serious threat (1).

Register of Public Loans

If one of the main tasks of banks is Financial intermediation, it is the changes in the models of this intermediation that are likely to cause changes in the functioning of the banks themselves, which will have to adapt to customers who, already knowing the offer of the new wave of services offered fintech startup, they will expect all the innovations they see in the market from reputable establishments.

The "bank account" and "savings account" model seems to be gone for good. If many people are still using these products, the days of such banking forms are over. More and more, especially younger clients, want to keep a minimum balance for their current payment needs. electronic wallets. And the rest of the means, if he has them, instead of save on depositswhich at present are of almost no interest to Poland, she wants to stock up on more active instruments. Not necessarily immediately to the stock exchange, but to various types of mutual funds. Of course, banks can also offer such products, but this is just one of many offers on the market.

Banks can be completely redundantwhen it comes to the most innovative forms of investment. For example, when it comes to using obscure and popular big data-driven lending platforms for automated credit scoring. In this model, instead of a bank acting as a lender, we have a "social" platform linking multiple lenders to multiple borrowers such as consumers or small businesses.

Obviously, such services undermine the role and importance of banks on both sides. As from the point of view of investors, since they are an alternative to deposits and funds, a way to invest money for those who have them. But also for borrowers.

Banks and other traditional lenders tend to exclude certain types of borrowers, including "safe ones" who have a realistic chance of repayment, given the usually tight bureaucratic approach.

It can be said that it is not “safe as a bank”, but for more risk-averse lenders who hope for a better return on investment, it may be something better than, for example, an exchange, which, although relatively successful , according to many, is more of a "casino" than an investment platform. On P2P lending platforms, big data allows investors to provide a detailed and, importantly, localized assessment of borrowers. Depending on the platform, creditor they may have access to large, complex sets of borrower data, but also rely on the offerings of the platform itself when evaluating borrowers, making purchase decisions across asset classes.

It is worth adding that instead of relying on standard, universal risk weights, the platform can use detailed criteria and adapt to the realities of local markets, as well as take into account highly personalized historical credit profiles, much more supporting investors in assessing borrowers. traditional financial institutions.

2. Peer-to-peer lending

World-renowned P2P lending platforms (2), as these services are called, include Peerform, Lending-Club, Prosper, Funding Circle, Mintos. Not all of these platforms use machine learning and big data analytics, which is worth keeping in mind if it is important for someone to use this particular technique.

Fintech banks do not need to compete yet

P2P lending platforms they belong to a broad category of fintech innovations that took off in the wake of the 2008 financial crisis and were fueled in large part by disillusionment with the behavior of the banking establishment. In the face of tough scrutiny, banks have drastically curtailed many of their operations to reduce risk, leaving a significant gap in the market. Companies from the fintech industry have stepped in, bringing new ideas to an industry that had previously lacked innovation.

Even earlier, smaller, nimble companies could take advantage of the financial sector's inability to respond quickly, as exemplified in the XNUMXs by PayPal, a service that provides convenient online payments, which at that time could not be provided by banks and payment services such as Visa or MasterCard.

For several years, new ideas have been focused on mobile solutions using smartphones (3). One of the first startups of this new wave is American Dwolla, which introduced an online payment system designed to bypass credit card operators.

Money is transferred from your bank account to Dwall account. You can instantly send money to any other Dwolla user by entering their phone number, email address, or Twitter name in the phone app. From the user's point of view, the greatest attraction of the service is the very low cost of the transfer, compared to banks and, for example, PayPal. Shopify, a company that sells online shopping software, offers Dwolla as a payment method.

Revolut has been the star of this fast-growing industry in recent years. package of foreign currency bank accountscombined with virtual or physical credit card. However, this is not a bank, but a kind of fintech service (abbreviation for “financial technology”). He is not covered by the deposit guarantee scheme, so it would be unwise to trust him with your savings. However, after depositing a certain amount in Revolta, we get many opportunities that traditional financial instruments do not offer us. A simple registration procedure does not verify your identity. Theoretically, the user can enter fictitious data and launch an electronic wallet. However, at this level we get a very limited product. In accordance with the EU rules on e-money and the prevention of money laundering, an account without full verification allows you to replenish it with a maximum amount of PLN 1000 per year.

There are many fintech companies and payment applications out there. Let's mention such examples as Stripe, WePay, Braintree, Skrill, Venmo, Payoneer, Payza, Zelle. And this is just the beginning. We can talk about these ideas for a long time. This is a sector whose career is just beginning.

Big and reputable banks are copying fintech solutions. At the same time, they are developing quite steadily and are estimated to be five years behind on average when it comes to mobile and similar innovations. However, banks know that they don't really have to compete with fintech newcomers.

The advantage of scale and development of the distribution network gives them the ability to maintain a significant customer base with a sufficient and progressively more innovative product. The dominance of large institutions prevents fintechs from truly competing with banks. If a bank truly wants to become an innovative leader in the field, it can dominate the fintech space relatively easily and quickly, as it has a lower cost of raising funds and can afford to spend much more on customer acquisition and retention.

Therefore, not all types of applications with original names pose a threat to banks. A much larger potential problem is the more general trend and technological direction called automation. So it is, by eliminating all intermediate elements in financial management, characteristic even for electronic banking. If banks start to lose customer relationships due to automation, they will become tools, suppliers of pipes and hoses that are used to store and transport money from place to place. The end result is an invisible intelligent service that understands and does everything for the client.

And with all this, the role of the bank as a brand that guarantees safety and efficiency is potentially disappearing. However, can they still find themselves in this world of automated financial services, not necessarily as the best intermediaries and fund managers, but as guarantors of reliability? Who knows? However, this is a slightly different role than before.

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