The 3 Phases to Bank Annihilation

I love the Next Bank community; its members push each other for healthy debate EVERYDAY. What started as an attempt to create ‘non-boring’ banking conferences has grown into one of the most influential communities in the industries. Its debates not only capture the attention of an industry on its knees in the face of multiple evolution fronts, but it also acts as the most brilliant sharpening tool for the self-selected community contributors. Take, for example, a recent post by Next Bank Founder, Rob Findlay, quoting the hugely respected JP Nicols of BIC:

"I cannot foresee any time during the next half-century, at least, where banks fail to exist, some form of regulated intermediary between depositors, borrowers and remitters. Some day some form of digital cash or crypto-currencies might change that, but I cannot foresee any time during the existence of humankind that banking will fail to exist. Some form of value exchange will always take place, but we may not always need all of the current financial infrastructure to make that happen.”

Sparking yet another exciting debate on the future of the industry, with some of the industry heavyweights putting in their two cents.

While the idea sounds solid and many would agree with Nicols. I had a slightly different view. In that it won’t be technology that reduces or replaces the position of the bank, but rather the evolution of moneys role in society. Remember money is nothing more than an agreed form of value exchange, and while it remains the dominate instrument, many offer forms also exist; like loyalty points, virtual currencies or even the good old barter system.

I firmly believe that there will be three key events that alter the course of banking FOREVER, shifting us away from arcadic models imposed upon society today.

First comes the paradigm shift

Like any other transformational or scientific revolution, it starts with breaking from the status quo. Over the past decade we’ve seen many gallant attempts to evolve the role of money, with many now approaching serious scale. Everything from mobile money, Bitcoin, p2p lending, p2p FX markets, and intelligent financial engines. All of these dramatically lifting the utility value, transparency and immediacy of the ecosystem. Each of these steps pushes the boundaries of what’s possible, often coming up against a wall of critics, slander and fear messages. But what’s really happening, is thousands of brilliant minds around the world are starting to ‘Think Different’.

Its only a matter of time now before something as viral as Angry Birds takes off like a rocket, taking the hopes of the market with them.

I’ve written before about the limits of the status quo, as incumbents fight to protect their way of life, and they dig their holes deeper. As they watch in amazement, as consumers shift their money to alternatives capital pools, well away from the traditional instruments used by the banks today.

In the second phase comes the global demand for intelligent money.

Around us the world’s ecosystem becomes more connected, analysed and interrupted, putting us on the cusp of the age of wisdom. The era in which the strong become those that learn the fastest, derive the deepest insights and create (not try to control) the future. This is a two-way street, where consumers are equally intelligent, shaping new demands of industry.

For the banking sector, this means the need for intelligent value utilities. No longer will consumers be controlled through complexity, naivety or superficial attractions. They will seek deeper, and broader value from the companies that manage their money. Expect a shift to smarter integration of money, loyalty, transparency and choice, as consumers are empowered real-time to make decisions in their best interest.

What does this mean?

Expect consumers that know the source of the funds they borrow, or lenders to know where their money goes. Expect consumers to demand end to end transparency on financial instruments and supply chains for all the products in their daily lives. And as truly enabling companies drive new market offerings, we will see and accelerated dissonance towards the incumbents that don’t shift with the times.

The third and final nail in the coffin of many banks will be the rise of the digital native.

Often the significance of Digital Natives are overlooked or unreasonably questioned. Dismissed as un-loyal, unprofitable and too tough to serve. But one factor that will change society is when the world’s digital natives makeup significant voting power. My rough guesstimation suggests that digital natives will make up a democratic majority in most G20 or developed nations. Why is this significant? Because this generation ‘Think Different’. They intuitively understand the power of the connected information economy and multiple times a day work the system to their favour. They expect transparency, immediacy and intelligence, and will not accept being told how great an organisation is through marketing and PR. In their world a brand, which includes the government party brands are two-way dialogues with society.

Those three phases again are: 1. The Paradigm Shift 2. The Evolution of Intelligent Money, and 3. The Rise of the Voting Digital Native.

Examples of these can already be seen in various industries like the shift from physical books, to books as content.

Banks will try to buy their way through, but vast numbers will fall on their sword, as the direction and pace of their industry changes.

Do you work for a bank that will fall on its sword?