The Binary Code of Banking
The transformation of the banking system and the development of a new business model for digital finance are inextricably linked: the powerful and inexorable development of the latter can be a lifeline for the former, which is facing an unprecedented identity crisis. The new services, which are variously included under the rubric of e-banking, shadow banking and fintech have as common denominator the overcoming of physical/regulatory constraints of traditional banking, and the full, efficient use of the potential of the Net and its connectivity, innovation, content, and service concepts.
Today, all this leads to identify four broad areas of activity relevant to understanding the ongoing evolution of this complex phenomenon: mobile payment services that harness the connectivity of any device to enable the customer to make fast and secure transactions; services for comparing and purchasing standard financial instruments, be they insurance policies, consumer loans, credit cards and even home mortgages; P2P lending and crowdfunding services, which bring into being markets for the exchange of commercial invoices and issuing of loans, and can raise venture capital or simply attract donations; portfolio and investment management services, thanks to robo-advisor systems that sift through a huge mass of information for portfolio allocation and buying and selling strategies. Within these four areas non-banking actors are emerging, but also existing banks that offer fully digital service models to their clients.
➜ light capital solutions
The inexorable advance of digital supply of financial services rests on solid, long-term elements characterizing change in the banking industry, which have already affected other industries. There are two main factors to be observed. First, the search for bank profitability, in the presence of rules that lead to high absorption of capital in many business areas, pushes banks to identify new productive combinations based on the reduction of costs through the downsizing of the branches, and on the search for activities that do not lead to the use of regulatory capital. The search for light capital solutions therefore found in online banking a formula that meets these requirements perfectly. "Shadow is the light" can be said to be the slogan of this trend. Secondly, the digital transformation of many industries produces a domino effect and an imitation effect in related sectors. To the extent that the distribution of both consumer and luxury goods has been altered by the digital component, payment, financial and insurance services connected to these must quickly evolve into the online dimension to meet emerging demand. Moreover, to the extent that the demand for banking services sees the overwhelming presence of millennials and digital natives, the domino effect is bound to be amplified.
➜ the Chinese model
In the largest market of the world, China, all new private banks have an online connotation (WeBank, MyBank, MyShare Bank of Wenzhou), and see among their shareholders the Chinese giants of online retailing (Tencent, Alibaba, Baidu): their strength lies not only in superior distribution but also on the greater capacity to assess credit risk by monitoring online behavior of consumers themselves.
It is no coincidence that last April, Goldman Sachs, the US investment bank, has announced the launch of GSBank, a retail and digital banking platform speaking the digital language: it combines accessibility of crowdfunding (minimum one-dollar deposit!), fast and smart connectivity to make transfers as if you were on whatsapp, and the absence of barriers to entry typical of online communities. It should evolve rapidly and add many other services.
If the prophecy made by Bill Gates in 1994 that "banking is necessary, banks are not" is becoming true, it is also true that traditional banks that are nimble to enough to seize the opportunities afforded by this unrepeatable period of radical change will reap success and remain major players.