Digital Disruption of Finance Services Will Change Banking as We Know It
While digital services will become so thoroughly a part of banking and finance, from payments to philanthropy, offline approaches will still be needed to provide trustworthy partners for artificial intelligence and big-data algorithms
Dalian, People’s Republic of China Technology, particularly the internet and mobile communications, is rapidly changing the financial services industry. Consider the impact of the internet of things the proliferation of internet-enabled items, including accessories that people wear or carry, and big data, the accumulation of information about transactions and preferences that can be analysed and used by service providers to customize their offerings. Bank branches are closing down, wealth advisory and management are conducted in real time, and even plastic ATM and credit cards are disappearing.
“Banking is at an inflection point,” said Anju Patwardhan, Group Chief Innovation Officer, Standard Chartered Bank, Singapore, in a session on the “Digital Disruption of Finance” at the World Economic Forum’s ninth Annual Meeting of the New Champions. “Technology is the key enabler. In the next few years, banking will change and there will be a lot more collaboration between banks and technology companies.” Banks may look more like tech companies, while tech enterprises will perform many of the functions that were once the preserve of banks. Already there are non-banking firms that operate payments systems and maintain customer deposits through e-wallets. Peer-to-peer (P2P) lending that avoids the use of a financial institution as an intermediary is growing.
“The banking model as we know it will continue to exist until the business design is changed,” Iqbal A. Khan, Chief Executive Officer, Fajr Capital, United Arab Emirates, observed. “Banks will change, but they will not fade away.” Added Huang Yiping, Professor, National School of Development, Peking University, People’s Republic of China:
“With big-data tools, investors can do analysis themselves. They won’t need the help of banks and can make investments directly.”
Technology is bridging the gaps in knowledge and access between professional financial advisers and service providers and the public, correcting the asymmetry of information that enabled banks and other financial institutions. Mobile devices are giving access to capital to the previously “unbanked” and helping even the smallest borrowers build businesses that can secure their livelihoods. The internet and mobile devices are enabling new ways to raise funds for ventures and philanthropy. “This is the democratization of finance,” said Patwardhan.
All these changes are raising questions about regulation and the lack of global frameworks on a range of issues, from cybersecurity to privacy and the confidentiality of data in a world where there has been a longstanding segregation of payment systems and financial intermediation.
While big data analysis and the use of algorithms combined with psychometrics will sharpen credit analysis, and robots and artificial intelligence could provide wealth management advice, the bricks-and-mortar side of finance will not disappear altogether. “At the end of the day, we have to combine online and offline approaches,” Tang Ning, Chief Executive Officer, CreditEase, People’s Republic of China, advised. “Customized services will still need an offline approach provided by human beings. Maybe a robot will help with wealth management, but we will still need offline trustworthy and reliable partners who offer face-to-face service.” Still, technology will become so much a part of finance that the old ways of providing financial services will surely be abandoned, Tang concluded. “The term ‘internet finance’ will disappear. Ten years from now, it will just be finance.”