Public trust eroded in bankers recently, well what about software developers?
The Federal Reserve of the United States recently announced the plan to allocate banking licenses for upstarts. Today you can bring a comprehensive online financial services platform to life in a matter of months, at least as far as the technological infrastructure. What do these trends mean for the future?
We often segment our audience into upstarts and incumbents, however, more lies beyond a crude segmentation like that. Incumbents have recently replaced entire divisions of bankers with technology professionals, ranging from those with experience in media, telecoms, gaming and other diverse industries. Judging from our observations, the traditional banker is learning new tricks and the technology savvy professionalism to take charge of new business innovation.
What does this then mean overall, what does a technologically savvy professional audience care the most about? Undoubtedly, an increased focus on efficiency and the end user experience with technological innovation such as artificial intelligence, chatbots and machine learning and a deeper focus on user behavior data and decisions based on data acquired from multiple sources. These trends will have a profound impact on how the future financial services applications and models are developed.
Efficiency trumps relationships.
The age old adage of relationships and their importance is deeply rooted in financial services, reflected in corporate banking, investment banking and trading. However, there are strong arguments that ultimately relationships will give way to efficiency in various sectors regardless of the importance of the relationship, it will become secondary to the cost of the transaction.
Take trading for example, however important the relationship, will the existing infrastructure be able to compete with a tool that is always quicker and more informed? Of course the tool will not have a ‘gut feel’ but there is ample research that suggests that gut feel is not an important consideration in several market segments, highlighting that certain human elements which have been considered convention in different sectors may become increasingly redundant as we embrace innovation. It is these elements that may be holding a company or an industry back. [The trading analogy can be discussed at length and we invite the reader to do so, and for example compare the introduction of innovative tools in the past such as hedge techniques which resulted in unintended consequences on the public market.]
We are not advocating for the extinction of relationships and their value. However, it can be argued that relationships play a smaller role in market segments than what is often thought. In the future people will likely pay a premium for that relationship and human attention, rather than the efficiency of the standard model and service roles will become more specialized around clients service needs.
Relationships will translate to brands
Brands are already well trusted when comes to financial services and for good reason- brands can be seen to have a huge sway in financial transactions (who is the IPOs underwriter) and stand for something to people. Financial institutions lend this brand to various product lines and services and in future will include more efficient methods of conducting business, even completely automating the process with the backing of a prestigious brand name.
The known - unknown future
Its important to not get stuck in a fallacy, where existing services are modernized in the future and ‘solved’ through a magical solution. Financial services are a complex segment, with regulatory policy playing a large part on them, and any development is going to take time to mature. The future is full of opportunity, and it is up to each and every organization to build the services that supercede others for the most efficient and best user experience. This is where the profit will be found, yet the implications may be far different than what we had imagined.
For example, take a sector such as life insurance industry becoming more ‘user friendly’. What does this mean in practice, who actually wants to hear from their life insurance company and what on earth would you like them to communicate to you?
It may well be that looking at behavioral data, value chains may polarize much farther, where if the data suggest an interaction only has a negative potential outcome, the interaction will not exist. Much like the example of life insurance and the relationship today, we will see a polarization between a full hands on service with a personal touch that people will pay a premium for and a self serve model that will be efficiently priced. Those looking for a service in between, may find fewer than previously thought due to business model challenges.
What we do know is that the modernization of services and financial inclusion will continue to dominate the discussion, and will reign in a new wave of financial services that are more efficient and transparent. These traits will be transformational for the financial services industry as the software banker takes hold and dictates the relationship with your financial portfolio.
Internationally awarded digital finance entrepreneur, active in pioneering new securities models worldwide. Has worked in digital finance since 2009, recruited over 100 individuals, built up a operations on six continents and been recognized as one of the top 100 thought leaders in crowdfunding. Markus has pioneered new funding models in the US and Europe, advised policy makers worldwide - including the SEC, the European Commission and Italian regulator CONSOB - for more effective markets, and worked with visionary organizations such as the World Bank and the Kauffman Foundation to improve frameworks for digital finance. Markus has studied computer science and economics (M.Sc).