What is the new wave of banking disruption the world is currently living?
We are now living the new wave of disruption. We can feel it. We can see it. Everywhere. Techs are developing faster than before; new economic and social segments are integrating innovative solutions. The COVID-19 pandemic crisis has significantly accelerated several tech spheres and has raised questions regarding crucial innovations needed for the most important spheres of our lives.
While we are living this new disruption wave, we barely know what exactly it is about. Let’s discover its banking side together as this wave is supposed to be driving our lives during the current decade!
Part 1: The current disruption drivers
The current disruption wave is being driven by the same factors as the previous ones. Among them: economic, technological, demographic, social and environmental. These factors highlight both the society needs and its dispositions. And yet, the technological factor remains the preliminary one for the banking sector disruption respectively to all the previous waves. The combination of such contemporary technological solutions as artificial intelligence, machine learning, Blockchain and quantum computing are producing new industry opportunities as far as create new risks for the banking sector. They also significantly change the operational part and human involvement in banking itself highlighting the raising need in internal banking and financial processes changes.
As for the economical factors influencing the banking sector, the developed economies Japanification is one of the most powerful ones. Japanification changes those economies towards being low growing, showing low inflation or even deflation and near zero or negative interest rates which has, without any doubt, material consequences on profitability and development of the banking sector. The COVID-19 pandemic has also influenced a drastic decrease of the whole world economy completely redefining global and local financial activities.
The main demographic banking disruption cause is, of course, the fact that the population of all the world economies is aging which leads to all the social and public governmental aspects to be changed.
Furthermore, for the first time the banking sector is being significantly influenced by world social concerns such as environment protection and climate change which also stressed out the need in banking operational changes.
The combined effects of technological disruptions, radical changes in the nature of work, demographic shifts, climate change and economic Japanification can have serious consequences for the banking industry. A scenario of low growth, in particular, can lead to a sharp reduction in banking capacity, since fewer banks than we have today will soon be able to offset their cost of capital. Institutions that do not have large-scale or differentiated capabilities are, in most cases, most likely to find themselves endangered.
These forces can also change the way banking is done today. Thus, banking sector should become more open, transparent, real-time, intelligent, adapted, secure, transparent, rapidly adoptive to world situation and deeply integrated into its customers lives and the activities of institutional clients.
However, an endless opportunity arises from this very disruption need. During the current decade, bank leaders should rethink their aspirations in the light of this new reality we are living and strengthen the core foundation of their financial institutions. Do not let short-term actions distract from the development of a bolder vision. Instead of shying away from change, leaders must figure out how best to deal with this wave of destruction. And these are the tech disruptors that will be giving them the hand during this turbulent period. As only from a synergy a new financial reality will soon be born.
To be continued.
