A Guide to the Era of Cyborg Banking

A Guide to the Era of Cyborg Banking


Over the past few decades, advances in technology and artificial intelligence, accompanied by complementary regulatory reform, have fundamentally transformed modern finance, with Fintech companies as the ultimate game changers in the market of financial services. The Financial Stability Board has defined Fintech as “technologically enabled financial innovation that could result in new business models, applications, processes, or products with an associated material effect on financial markets and institutions and the provision of financial services”. Anna Omarini, Professor of Banking at Bocconi, in her Bank and Banking: Digital Transformation and the Hype of Fintech (McGrawHill, 2019) highlights how Fintech companies have changed the banking landscape and describes both the role they are playing and the ways banks are reacting in order to compete in a fragmented and very competitive market. Thanks to the author and McGrawHill, we publish an excerpt of the book.
There are many territories (payments, lending, financial advice, etc.) and many different actors in the financial services landscape and the market situation is ever changing and at present undergoing a deep transformation. The new strategic thinking is moving on regarding the future of money which has become a more complex subject. The history of how money is changing has always represented a snapshot reflecting the attitude and behaviours of a society and its evolution on how value is exchanged among individuals. Money changes following changes in society, yet it continues to be. This has always been a critical issue. The minting of any representation of value (digital or otherwise) is backed by the full faith and credit of the issuer whoever that may be. In this situation, the rate of acceptance follows recognizable patterns of behaviour, which is fundamental for any monetary substitute to be accepted and circulate in the market, freely, over a stable long-term period. This is because money is the tool through which savings, investments and capitals are held in the economy. Behind its value there must be trust in money itself and its related factors (issuer, circulation, etc.).
Times have changed, and not a single one of the main products mentioned as belonging to banking has remained exclusively in the hands of banks or other conventional financial intermediaries. Many competitive boundaries have started coming down so that everyone competes in a world of sectors without borders. Banking is a business under deep transformation and this has a bearing on all the related sub-businesses of retail, private banking/wealth management as well as corporate banking in its future perspective. This can mean different things to different people and in this regard, the market is experiencing different kinds of change. There are those digitalizing services, others are introducing new interfaces (Apps) to increase customer usability and experience, while others changing their business models.
The new players view value for customers differently and their organizations are more customer committed than the traditional financial services providers have been perceived by the market The attention moves from value chain and the company’s value proposition to value for customers which requires a change in mindset and a critical thinking approach both to strategy and managing solutions within the digital business ecosystem. Within it value will rely on networks more and more. This requires having a more holistic approach to customers’ knowledge and leveraging knowledge means capturing value to use it to create new business and develop a wider portfolio of businesses. This is why some of the new players – such as retailers and Techfin – are also prepared to give up bank services in favour of other sources of value. This means that banking, as a business is not in search of relevance, instead it has a growth potential both in developed and developing countries overall. Banks and nonbanks will become even more crucial as individuals are driven to take a more active interest in saving and investing. In the market, there is a kind of invisible banking and an infinite intermediation need is out there. As banking will remain a people business, this means that factors – such as trust, distinct professional knowledge, soundness and a strong culture of fact-based decision making – will keep their relevance.
As digital technologies are changing the way individuals do their banking, giving them the perception of being in control and emphasizing the construct of a service economy (banking-as-a-services, platform-as-a-service, etc.) all this should lead to having a clear vision over a medium-long term perspective in strategy and management and be aware about the risks of banking as a business. This will concern both banks and Fintechs. Otherwise, a pure transaction-driven business model will only survive under a set of given conditions (volume, continuous innovation, capitals, economies of scale, just to outline a few, because size will matter even more).

by Anna Omarini


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