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A CASHLESS SOCIETY? WHY THE FUTURE OF MONEY WILL MAKE OR BREAK BANKS

23/01/2019

Rahul Singh, President of Financial Services, HCL Technologies

 

When you educate people, you trigger change. Perhaps that is why many universities are now accepting tuition fees in Bitcoins. Among them are the Lucerne University of Applied Sciences and Arts in Switzerland, FPT University in Vietnam, the King’s College in New York and the European School of Management and Technology in Berlin. It’s possible that these universities are injecting the young with new ideas so that when they graduate, they can lead the way by shifting from fiat-banking to decentralised cryptocurrency. In Hangzhou, China, Alibaba’s Ant Financial is changing how we handle money with its launch of a ‘smile to pay’ service at a local KFC. A 3D camera recognises your face, maps it to a bank account, credit card or mobile wallet and completes the transaction, all before the wings and fries are yours. Fundamentally, the future of money appears to be invisible, and underlying this is the intriguing reality that the distinction between money and data will vanish.

 

Money talks

The consequences are enormous. For one, we’ll simply move data around and not hard cash, saving billions worldwide each year as physical money will no longer need to be produced. Counterfeits will be non-existent and, combined with blockchain, entire economies will be spared from immoral underworld transactions. Tax evasion will become (almost) a thing of the pas and, in a cashless society, the importance of global financial hubs like New York, Zurich, London and Hong Kong will come under question. In other words, there’s a Richter eight earthquake coming to the financial services industry.

You can imagine what these changes imply – new processes, policies, regulations, platforms and systems will emerge, creating fresh challenges in integrating these diverse systems and technologies. In the immediate future, it is the uncertain technological landscape around virtual or digital money that is the single biggest barrier to an almost frictionless financial world. However, as digital technologies seep deeper into every industry, it can only be a race to the bottom for those who don’t adopt digital. Banking is no exception.

Banks were primarily known for three things: the ability to store money, keep it safe and make it available conveniently anywhere else. Over a period of time, banks began offering ways to make money grow – even when it was doing nothing in the bank vault – through loans and investments. That was a natural evolution in the history of banking.

Quite suddenly, however, this has changed, since banks are no longer the only ones offering financial services. Chinese e-commerce giant Alibaba, for example, is already providing small-scale loans to consumers. Alibaba knows its customers well and can quickly tailor products to fit the needs of individuals. In fact, organisations such as Amazon, Apple, Google and Facebook which own enormous quantities of customer data and whose platforms are used regularly by their customers, are well positioned to offer banking services. The fact that they are digital by birth makes them daunting competitors to the traditional banking industry.

 

You can bank on technology

The question is, should banks be daunted? Not really. Consider this: banks own their customers and are already custodians of their wealth. That not only gives them an unmatched start, but opens some surprisingly obvious doors for staying ahead of the competition. These include injecting digital into their processes and re-engineering core systems, building sophisticated customer profiles using data with a manic obsession, partnering with dynamic fintechs and moving from being product-centric to customer-centric. All things being equal, it will be customer experience that defines a bank and creates differentiation.

If there’s one thing banks can count on, it’s that the demands from customers will remain the same. They will always want their banks to keep their money secure and enable payments and cross border transfers. Similarly, there will continue to be demand for banks to offer wealth management, provide loans, credit, overdrafts and a host of ancillary products such as tax management, property evaluation, market forecasts, expense tracking, debt management, pension, alerts and reminders. The ones who offer personalised services with minimal processes, authorisations, delays and costs will ultimately win.

When every aspect of banking goes digital, four elements will dictate success: banking licenses, technological heft, marketing muscle and customer experience. It is essential, therefore, that banks use the firepower of next-generation technologies like blockchain, biometrics, natural language processing, chatbots, data sciences, analytics and augmented reality to re-engineer themselves.

Banks must begin to use technology to drive severe innovation. For example, can a bank crowdsource funding for a customer’s business at lower-than-market interest rates? Can it offer on-demand, real-time price comparison for its customers and drive savings? Can it deliver deals and bundles to customers based on real-time location tracking? All this would be impossible without drawing on the power of advanced technology. And it would be equally unthinkable without an innovation mindset.

 

Adapt or fail

The terrible truth is that there is no time to test-and-try technological options or experiment with innovation. Banks and other financial institutions must find competent partners who are already developing these technologies, who have a deep understanding of the financial services domain and the talent to confidently innovate. Money will, inevitably, become invisible, and during this process it will unleash ground-breaking change. Some banks will be swallowed by this change; others, with an appetite for technology, will thrive.

 

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Finance Derivative is a global financial and business analysis magazine, published by FM.Publishing. It is a yearly print and online magazine providing broad coverage and analysis of the financial industry, international business and the global economy.