Disrupting Banking: Anybody Can Dance

Industry experts, clairvoyants and everyone else with an opinion on the subject, have talked about banks being disintermediated for the better part of a decade now, in India, and for longer in more developed financial markets. The predicted “unbundling” of banks hasn’t happened and we have seen them become bigger and stronger.

The industry was fated to be disrupted by tech driven fintech startups that would eat into the pie of large financial institutions (FIs)  – nowhere in the world has that happened, for many reasons – and it is my opinion that innovation in banking and finance shall, in some part, definitely be propelled by young startups, but the bulk of it will emerge from within the FIs.

In most sizeable financial markets, there has been an emergence of fintech companies that have attacked, and in some cases, grown well, to solve parts of banking. Payments, retail and SME online lending, instant credit decisioning, asset allocation and expense management are some of the areas with the greatest proliferation of such fintech startups. Of these, payments and alternative lending companies have seen the bulk of innovation, traction, capital allocation and consequentially, impact and value creation. All of these companies have their rightful place in an ever-growing market and the good ones will thrive and create value.

However, most game changing innovations will come from the banks themselves. At the risk of sounding outlandish, here are some of the things these large, bulky institutions that are slammed for not being nimble enough, might execute and change people’s lives and their own ways of doing business.

AI and Machine Learning: From risk assessment to asset allocation in securities to product sales and consumer facing chatbots, artificial intelligence (AI) and machine learning already are, or should be, central to any bank’s technology roadmap. Most of the game-changing technologies feed on and are taught and improved by data – which, in most cases, is only available with large FIs. From predicting loan defaults to grossly reducing customer onboarding and customer service operational costs, banks and FIs should and most likely will lever these new tech trends.

VR and Financial Advisory: Virtual reality  (VR) technology can change the way clients and advisors interact. Digital advisory is not new, but is accelerating, and at some point, will go virtual. In 2015, Citibank released a proof of concept video on holographic workstations – rate of innovation adoption is fast and this trend could soon be seen on trading desks around the world, including India.

With hardware and software powered by third parties, FIs could get on the VR bandwagon and change the way they interact.

Blockchain/Distributed Ledger Systems: While distributed ledger systems have many applications such as payments, trade and e-commerce – FIs will also benefit greatly by applying them to KYC and money laundering and credit fraud. The inter-bank sharing of customer information is already beginning to take place in many countries and couple this with a blockchain type of solution, you will automate a lot of compliance processes and reduce costs and fraud.

Fintech startups tend to pit themselves against FIs in a David versus Goliath type of situation. That doesn’t need to be the case. There will be some things that only young, nimble teams with low costs will be able to achieve. Others will only be achieved through large budgets and data sets to learn from. Innovation will come from David as well as from Goliath. The banking elephant shall, as it always ends up doing, dance.