The ripple effect of better FX: How technology disruption is holding banks to account
The banking sector has gone through a number of crises in recent years, each taking with it a number of major casualties. Barings, Lehmanns, and indeed RBS – among others – have fallen, or have needed considerable shoring up by government. More recently, technology-enabled companies are challenging traditional financial service models.
But still banks are keen to maintain the status quo, both because of their traditionalist nature and because they do not want to rock their own own boat any more than they have to. The result is to let inefficient banking models pervade, with the additional cost being borne by business and consumer customers.
At the same time a quiet revolution has been taking place in the sector. While technology has been helping the big institutions ‘drive more value out of their assets’ (a.k.a. further squeezing customers for revenues), it is also behind a number of innovations in finance.
We’ve seen various crowdsourcing models, from Kickstarter to UK-based Seedrs; we have P2P lending and of course currency exchange; we have cryptocurrency and distributed ledgers, each taking finance in new, exciting directions.
Banks are waking up to these developments, either through partnership or through their own initiatives — Santander, for example, has a whole innovation unit. It is likely however that it will require full-on disruption before the major banks really seize the mettle.
Other industries are already being forced to wake up and smell the coffee due to the astonishing valuations of companies such as Google and Amazon, or the appearance from nowhere of globally operating startups like AirBnB and Uber.
While the banking industry faces disruption, it is not yet at the point of crisis. However, it will not have to wait long as mobile payments systems like Apple Pay are just the tip of the iceberg. From being the force behind the banking industry, technology services companies will not stop until they have moved into direct competition.
Given past performance, it seems unlikely that banks will respond until a crisis point is reached. Whereas on previous occasions banks have been supported as they fall back and regroup for fear of leaving a vacuum, this time there is an emerging alternative.
While it is highly unlikely that banks will go away, they could well be on the brink of far greater disruption than they have experienced over the past decade. Faced with genuine competition banks will be forced to overhaul their service portfolios, with customers the ultimate beneficiaries. Which has to be a good thing.
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