The financial world at your fingertips

Branch banking is on the decline. Not only are there fewer branch banks the total square footage of branch bank space is going down as well. However, this is not really a problem of the branch banking design, it is much more a problem of how customers are acting. Customers are not as focused on the channel but rather on the product. In fact, by 2020, almost everything we use will be a connected smart device. This includes banking. We will grow to expect that our credit, payments, and banking will just work.

A popular example of this is Uber. Many Uber drivers never had a bank account before starting. This is because a lot of them came from the taxi industry which is mostly cash based. As such, Uber was able to solve this problem by allowing Uber drivers to sign up for bank account directly through the Uber application.

Another example of this is when you go shopping, either for groceries or other products such as electronics. With things such as Apple pay, we don’t need plastic credit cards or debit cards anymore. With our phones, we will be able to in real time pay.
Additionally, the current banking system is not adapted for the future self-driving car economy. In the future, it is much more likely that many people will pool their resources to own a smart self-driving car. For example, you might tell the car that you need it in the morning to go to work. After it drops you off, the car is free to go and do its own thing. Perhaps, it will find a car park to charge itself. It might also want to work for a few hours as an Uber driver. However, while it works as an Uber driver, it will make some money. As the car is owned by several people, naturally, the car will need its own bank account. The money that the car owns is not any one of the people who jointly owns the car. Rather, it will be used to help offset the costs of owning the car for all of the people involved.

All of this shows us that the future of banking is not with signatures on a piece of paper. Rather, it will be to seamlessly integrate with customer’s everyday life.

AI has quickly evolved past our imaginations into reality. In fact, it is able to perform a lot of real world applications in the finance service sector. However, first, it is important to understand what artificial intelligence is. It is a machine intelligence that is able to act, decide, think, and remember without a human intervening. This can be split into 3 categories: Narrow, General, Super. In Narrow, the AI focuses on one task. This can be seen in search engines. In General AI, the AI can perform a variety of function. Currently, we do not have any examples of this type yet. In Super, the AI will pass human intelligence.

However, we shouldn’t look down on narrow AI. In fact, within finance it has already brought back a great ROI. To break down the AI further, there are two subsets: Machine learning and deep learning. Machine learning is how the AI, similar to a human, uses algorithms in order to make sense of data. Deep learning, similar to machine learning also tries to make sense of hidden data.

However, why is AI relevant now? This is due to several reasons. First, in 2012, a Toronto University team helped set off an explosion in deep learning AI with their winning AI. Second, the occurrence and massive growth of big data has helped AI develop. AI needs a lot of data in order to work. Before this was a big road bump. However, with the increase in networked sensors, AI is able to learn at a faster pace. Third, most AI algorithms use multiple streams of data and need a lot of speed in order to compute. With the move from CPUs which have less processing cores, to GPUs which have more processing cores, AI is able to work much quicker. Fourth, cloud computing has allowed AI access to massive amount of computing power all around the world. Fifth, the use of open source software has opened up AI to everyone. Now research into AI can be shared.

The greatest evolution in payments is not in things like Square, Amex, MasterCard, Visa, or even faster payment methods. Rather, it is all about simplicity and context. This is where technology such as mobile is leading the way.

From the earliest days of payment systems, the method was generally pretty simple. With the advent of technologies such as telephony and computers, we were able to send money across the world. This also meant that the payment systems needed to be more complicated. However, there was a clear benefit. Finally, with the advent of POS systems, we could make payments pretty much anywhere with credit cards. However, this was also at the expense of a very complex back end.

Today, we tend to not understand the complexity of who a lot of technology works. For example, there is a lot of complexity behind cellphone and making a call around the world. However, for the user, we just simply press the dial button. With regards to payments, we are looking to make the payment process almost completely disappear. A great example of this is Uber. You jump into the Uber car, go to your destination, and jump out with the whole payment processing happening automatically. It has become the fashion to make the payment process as simple as possible. And what is simpler than making it completely disappear?

However, today we live in a very different world from the payment systems of old. Namely, we live in a world full of information. In fact, it can be quite chaotic. Therefore, it is important that the information is contextual. With regards to payments, this can mean knowing the amount of money left in your bank account. In other words, we as the consumers are not that interested in the payment itself. Rather, we are more interested in the events before and after the payment or in other words the experience. We want the payment to completely disappear so that we only see the value of the experience. 

Our digital age is making new models of banking possible. However, with the combination of technology and regulation, it is also becoming necessary. There are 4 main strategic options for banks: Digital channels, front end, own product factory, and infrastructure cloud based hosting. A vertically integrated and open style platform tends to offer the best solution.

Our economy has changed over the last 120 years. We started out as a producer economy. In this style of economy all the effort was used in systemizing producing so that we could be the most efficient as possible so that we could overcome scarcity. After WWII, we moved to a consumer economy. Now that didn’t have to worry about their not being enough, we focused on desire. This led to things such as credit and advertising. However, everything came crashing down with the 2008 financial crisis. Today we live in a creator economy. The scarcity is now the engagement of the consumer and their lack of attention. Now the consumer is also the producer. A famous example of this is Facebook. The more consumers there are on the platform, the more people there are to produce content.

Historically, banking helped underpin the growth of the consumer economy. However, in our new creator economy, they do not play as big of a role. Namely, they don’t provide the venture capital required for start-up businesses. As such, not only are banks smaller today they also will need to evolve if they want to remain relevant. Additionally, banking, like any other industry, is being greatly affected by technology. Namely, things such as the Internet, data science, AI, and mobile devices have become big parts of our society. Therefore, the banks that can best use and integrate these things into their business are the most likely to succeed. However, as a heavily regulated industry, banks must integrate technology along with regulation.
With a changing landscape, banks are left with a few different option with what to do. They can either do nothing, become an infrastructure provider, turn into an aggregator, or become on open platform.