The Future of Retail Banking…assuming there is one!

The Future of Retail Banking…assuming there is one!

(Eric Wilson, our CEO, takes this head on :-)) The future of banking is not a bank delivered via a mobile phone, or a modernised Big 4 bank, & it mostly certainly is not a pretty app flogging an existing legacy bank’s products under a different brand. Every banking model that currently exists in Australia will be extinct or on the critically endangered list within 10 years, and possibly as soon as 5. It’s even entirely probable that cash as we know it will be gone in 10 years in many parts of the world. Everything will change, & yet in other ways nothing will change at all. Let’s start with what will change.

Money is an idea, a concept…..only limited by the technology it runs on.

Technology – or more specifically Blockchain

Banking is essentially a technology business. Money is an idea, a concept, an accepted notion of value, and that can be captured by data. If it can be captured and coded, then it is only limited by the technology it runs on and that technology is getting seriously sophisticated, seriously fast.

The biggest, most seismic change to Banking and our industry is the Blockchain and the cryptocurrency that thrives within it. For a super quick explanation of what Blockchain is try here.

If you just glazed over due to “blockchain fatigue”, don’t. This technology is already here and it’s already disrupting payments, FX, venture capital, back end banking platforms, trade finance, the list goes on and on and on. There are millionaires being made in their 1000’s all over the world from this revolution, you need to take it seriously.

“No one takes these challenger banks seriously….[they] may be small today, just like Facebook & Google were years ago….”
– Alex Kreger

Are legacy banks in denial?

I feel like Don Quixote at times, tilting at the great windmills of the Australian Banking industry. Shouting into the wind that an enormous change is coming, and to encourage them to get ready to survive. Whilst the legacy banks in Australia are of course my competition, they are a key part of economy, providing jobs to many good, decent people, I want them to survive, I really do, but the future is not going to be kind to them. Why do they refuse to change, to see the threat, to react? There are many reasons of course. A lot of them boil down to sheer size. This not only makes them unwieldy – costly legacy systems holding them back whilst fintech newcomers skip around nimbly, leapfrogging the technology – but let’s face it, complacent. Like Nokia before them, they simply don’t believe things can change.

As Alex Kreger points out in The Financial Brand, “No one takes these challenger banks seriously……[they] may be small today, just like Facebook and Google were years ago.” But change can happen very quickly. The hard reality is many ex bank employees will be looking for work and the all important bank share prices are going to suffer massively.

Banks will still enjoy largely a continuation of the status quo? I’m sceptical….

But there is innovation in old banking, right?

Surely this is all too gloomy? The banks will react and adopt the technology and maintain their relevance won’t they? What about Ripple? There are major banks now adopting it as an enterprise blockchain platform. As they are IBM Blockchain. And from Barclays, to HSBC to UBS – there are many other ways banks around the world are adopting this technology. Deloittes argue in their “Banking business models of the future” that there are various scenarios in which banks will simply enjoy a continuation largely of the status quo or adapt through fairly superficial collaboration with fintechs. But I’m sceptical……

It’s possible I am wrong and the future of banking might look like this. Our big incumbent banks adopting the blockchain, safe in their blanket of regulation from any real disruption. Cutting their costs by using great technology and being able to increase the margins they charge their customers. Smashing! Business as usual.

Even if the Banks do co-opt blockchain….the distributed network will adapt, overcome. 

Banking’s Kodak moment

Except I don’t believe that’s true. To think that is to misunderstand the Blockchain…not the technology so much, as the intent. The blockchain and to a lesser extent crypto currencies were developed to be used in an environment of zero trust. They build a consensus over a distributed network.

Now I am no techie, but even I can see a distributed network with zero trust required has no room for a trusted third party.

Another word for “trusted third party”? Try Bank.

So even if the Banks do co-opt blockchain and create their own private blockchains, the distributed network will adapt, overcome and continue to provide an alternative. Most likely a much cheaper alternative.

Do you trust a bunch of bankers never to cook up CDOs again and tank the economy?

Traditional banks can no longer assume regulators will protect them

Add to that regulators around the world are no longer seeking to protect the financial stability of the global economies by protecting the existing Banks. From the United Kingdom to the US to Australia, regulators are now embracing innovation and regulating it to make it safer for consumers and the economy, they are not regulating it out of existence to protect the incumbents.

Trust in the government, banks and experts is getting less and less.

What about payments and money? We are always going to need good old Aussie Dollar cash money in our hand right? Wrong.

Do you trust the government not to screw up the economy? Or for politicians to make sensible fiscal decisions and to limit our borrowing and keep the national cheque book (or distributed ledger!) in balance? Or for a bunch of bankers never to cook up CDO’s again and tank the economy? Maybe we should ask the Irish, or the Spanish, or the Greeks, or the Americans or ….you get the idea.

Blockchain adoption is inevitable

If your answer to the above is “No” then why wouldn’t you hold at least some of your money in BitCoin or Etherium or another crypto currency? The value of this currency isn’t dictated by any one government, country or central bank. It is held across many many countries, it is not subject to fees for being taken from one country to another, and as long as you can remember a relatively long sequence of pass codes, can be carried around the world simply in your head.

“Oh it’s horribly volatile! You could lose all your money!”

The internet wasn’t very reliable at first, at that turned out all right. No one is saying hold all your wealth in one asset class, that’s dumb.

“You can’t buy a newspaper and a meat pie with Bitcoin!”

Actually you can in some places, and we understand that very soon Australia will get its first Bitcoin based credit card which automatically converts into the local currency it is being used with. Think about the potential disruption in the payments space from that little beauty.

To observe the impact of even these small applications of Blockchain and Cryptocurrencies and not recognise the fundamental tectonic shift it will cause, is institutionalised blindness. Even the Head of the IMF acknowledges the power of these technologies.

“I think it may not be wise to dismiss virtual currencies.” – Christine Lagarde

Current banking models won’t survive

Bank models that exist in Australia today do not generate viable amounts of revenue in a world driven by blockchain and crypto currencies. In a world where client data is instantly portable (through open banking) in a world where there is no need for a trusted third party to hold your cash, a world where there is no need to pay a clip on transactions, and most critically a world where a loan rate can be arbitraged quickly and efficiently.

Even if open data and blockchain inexplicably suddenly stop dead in their tracks, there are substantial threats on the horizon. The old chestnuts of P2P lending, and large tech companies such as Facebook and Amazon providing payments and value storage are often quoted as immediate and visible dangers….but even organisations as mighty as these may well just be the vanguard of far bigger changes.

There will be major and painful disruption in the Australian Banking industry in the coming years. People will lose their jobs and iconic brands will fade away, but consumers will get better services at much lower prices.

We need to act now to smooth this transition, to mitigate the disruption felt with every industry revolution. Having people out of work, and unable to reskill places a terrible health and financial burden on individuals, families and our economy.

Still don’t believe me? Pretty sure the taxi drivers, book sellers, newspaper printers, hoteliers, white goods retailers, matchmakers and countless others wouldn’t have listened either. Is it so hard to believe bankers might be added to that list?

The future of banking is in the past.

The future of banking is in the past

Yet some things will always be needed. Someone to help me manage my financial habits, to tell me how much money it is sensible for me to borrow for a house and where to get the best deal, someone to keep an eye on how much I am spending on my power bills and where to get cheaper power. The more helpful a bank is, the more it will be needed and valued. As the power shifts away from banks controlling customer data and choices, towards customers taking the lead and having the flexibility, the current approach of simply selling products and extracting fees, without much added value, will diminish. And in its place we will see something more akin to the kindly bank manager of yore, the respected figure who genuinely and gently guided customers to better decisions and outcomes.

But not a physical being – perhaps not “someone”, but more “some bot”.

What we are just starting to see today in Australia is digitized banking ie existing banking practises in a digital format. As David Brear and Jason Bates of 11FS point out, “Digital banking is only 1% done”. The bank that survives into the future will be a digital bank with brand new digital capabilities driven by customer needs and working in their interests.

Technology will bring the humanity back to banking

Ironically the best digital capabilities will be filled with human like empathy, warmth and guidance. They will be almost entirely fulfilled by Artificial Intelligence and deliver highly personalised services with almost no human interaction. They will use technology to bring the humanity back to banking.

I have no doubt the vast majority of my banking colleagues in the industry will feel confident in their dismissal of my concerns and call to action. Even the most cursory glance overseas will show there is an extinction event on the horizon and those that don’t adapt will not survive.

Eric Wilson is the CEO of Xinja. This was first published at

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