Is banking ready for the digital revolution?

When asked “What technology skills (programming or other) do you see becoming obsolete by 2020?” Josh Schubkegel, ex-head of global equities technology at UBS, answered:

 “After Facebook bought Instagram a few years ago, they seamlessly moved petabytes of data on a live application via configuration automation tools like Chef, and their end users didn’t notice at all. All of us in the financial industry rely far too heavily on humans doing things in a certain sequence or legacy systems that have been patched together, but to be able to effectively handle the complexities of today’s world we have to be able to remove those types of steps from critical processes. Folks in roles where they’re managing legacy systems or processes with bailing wire and duct tape should probably begin actively looking to augment their skill set, since it feels like we’re rapidly moving to a point where new technologies will significantly reduce those types of jobs.” (emphasis added)

You can read the rest of his interview with e-financial careers here but suffice to say that his view scratches the surface.

Taking the evolution in the area of mobile payments and the payments landscape as an example

Mobile Commerce Ecosystem (Source: Perficient blog)

Understanding the payments landscape

there will be a rush of capital going to the “FinTech”

How to influence FinTech buyers

A good report by Thomas F. Dapp of Deutsche Bank research title “Fintech – The digital (r)evolution in the financial sector” came out in November, 2014. Download it here: Fintech-The digital (r)evolution in the financial sector

It’s main takeaways are;

The significance of digital structural change in many business segments is, however, frequently underestimated. Digitisation is impacting not only on certain elements of value-added processes and business models but on them as a whole, and they must also be adapted as a whole to the architecture of the digital age.

Over the long term an all-encompassing digitisation strategy should be accorded a high priority (not only) by traditional banks. Despite the massive squeeze on some margins, the fallout from the financial crisis which has still not been cleared up, the changing consumption behaviour of clients and increasingly strict regulatory requirements the banks need to undergo a radical course of innovation therapy during the transformation process. This will tie up considerable resources over the medium term.

The financial sector has a lot to offer. Valuable comparative advantages that a traditional bank has to offer include specific financial expertise (risk assessment, evaluation and management), discretion in handling client-specific (digital) data, as well as many years of experience of providing clients with regulatory-driven high levels of operational security. The latter is of less importance (as yet) to the new players in particular.

This is how modern banking will look. Modern data analysis methods will be used just as routinely as a seamlessly integrated web of all distribution channels. Flexible digitised infrastructures will in future enable banks to implement modern technologies and appropriate finance-specific internet services efficiently and above all in a timely manner with the aid of (open) programming interfaces. Strengthening one’s own brand and identity as well as the obligation to handle client data confidentially will also help to deliver a sustained increase in customer satisfaction and loyalty.

I am less sanguine about the ability of the banking industry to come to terms with this. Banking in some nations is a protected oligopoly and a technological laggard in employing capital to improve infrastructure. Bank executives have been swift to cut costs and outsource thus employing cheaper (from the reserve army of labour globally) at the expense of capital at home but that gig cannot continue indefinitely. Is banking ready for the digital revolution?

• banking
• fintech