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by Brett King, Founder, Moven Bank
Industry View from
Banking as we know it first appeared in the 14th century in Italy, centered around Florence. The father of modern-day banking is often considered to be Cosimo de Medici, who was born in 1389. The word “bank” comes from the position bankers used to hold in Italian commerce, sitting on marble “banco” benches in the marketplaces of Siena and Verona to assist with lending and financial matters. Shakespeare’s The Merchant of Venice portrays the sort of typical banking function we might have seen in those days.
In 1472, eight years after Cosimo de Medici died, the world’s oldest existing bank, Monte dei Paschi di Siena (MPS), was founded (it’s still around, although the financial crisis did its level best to kill it). It is conceivable that some of the clients of MPS in those early days were also clients of the Medici Bank. Today’s bank branches were basically designed during the Renaissance, with cheques, mortgages, and even paper currency all being developed during these early days of banking.
For the next 500 years, nothing much changed – at least until 1953. In that year, the first bank mainframe was built by the Stanford Research Institute to process the growing number of cheques used by customers of Bank of America. ERMA was a rudimentary computer by today’s standards, but it dramatically changed the way banking worked. It was the first database ledger developed to track banking transactions and marked the first time a bank used a number to delineate a customer’s bank account – this was because ERMA couldn’t sort customer’s accounts by name/address and needed a number for basic indexing. For a long time, the only way you could get access to banking was via a branch, and opening hours were limited. Up until the 1980s, most banks closed at 3pm in the afternoon to allow for the batch processing that their computer systems required.
Today, however, the fastest-growing bank accounts, value stores and mobile wallets that work like bank accounts (think Alipay, PayPal, PayTM, MPesa, and so on) are all digital propositions. The biggest private corporation in the world is a fintech company based in China, Ant Financial – the parent company of Alipay. Ant Financial also has the world’s most successful deposit product, with more than a third of China’s population now invested in Tianhong’s Yu’e Bao (translated as “Hidden Treasures”), with 114 million new investors in the last 12 months alone. Western commentators classify Yu’e Bao as a mutual fund or money market fund, but in China it’s just seen as a simple deposit product.
China is also home to the most successful mobile payments market in the world, with more than 70 per cent of the Chinese population using mobile payments weekly. It is estimated that last year China processed more mobile payments than all the plastic cards in the world – to the value of approximately $22trillion in mobile payments. But this system is not based on a sort of digital version of a credit card, such as Apple Pay. In fact, users in China today are paying for goods and services using facial recognition technology. This puts the Chinese market 10 years ahead of the likes of Visa, Mastercard and even Apple Pay in its current iteration.
In the US, fintech-based lending has exploded, with new entrants accounting for close to 50 per cent of the personal lending market in 2018. Challenger banks around the world are growing at a rapid clip. Banks such as Revolut, Monzo, Starling, Moven, N26, Xinja and others are becoming household names. Meanwhile in China, the tech giant Tencent spun off its own challenger bank just four years ago, while today WeBank is the largest challenger bank in the world, with more customers than JPMorgan Chase.
The biggest shifts coming to banking, however, are just around the corner. As we start using personal artificial intelligence built into smart speakers such as Amazon’s Alexa, or Apple’s Siri, we’ll increasingly let our “smart” assistants transact on our behalf, and also link to our bank accounts. By the end of the next decade, banking will be embedded in the world around us with a range of real-time technologies enabling problems to be solved when and where we need banking capabilities.
You won’t need to go to the bank to get a loan in 2025 – most likely your bank account will anticipate your need and, if you qualify, will simply make the cash available. Looking to buy a home? When you walk into a listed property, financing options will appear on your phone. Walk into a grocery store and your bank account will anticipate what you will likely spend, and if you don’t have the cash will offer you credit – you won’t ever use a plastic credit card. Your bank account will be able to tell you if you can afford to go out for dinner with friends on the weekend, or when you’ll be able to afford your first self-driving car.
Banking will still exist in 2030, but how we use our money will change. The best capabilities in banking will be technology related, not those skills that Medici or Monte dei Paschi needed. The most common bank accounts will be those embedded in our technologies, and they might be provided by Amazon, Alibaba, Alipay or some other technology player, not a bank with a government-issued charter.
Ultimately this will happen not because banks are bad at banking, but because they’re not great at technology. Will banks survive? Maybe. Will banking survive? Absolutely, but the bank account you have today will have long disappeared in favor of something that’s a lot smarter and a lot better for your day-to-day use of money, saving for the future and providing for your family.
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