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Is the Banking Industry Living on Borrowed Time?

In 1997, Bill Gates predicted the eventual demise of banking when he said, “We need banking but we don’t need banks.” Are we reaching the point where Gates’ vision is realized? Could we see the end of banks as we know them in the next 20 years... or maybe the next five?

Subscribe TodayThe banking industry is being attacked by a growing number of FinTech startups and digital companies who are working to capture market share from traditional players. To survive, traditional banking organizations need to evolve quickly, according to new research from digital innovation agency Adaptive Lab.

Based on this research, carried out for a new book called Bye Bye Banks?written by James Haycock, and co-authored by technology reporter Shane Richmond, despite the fact that banks are spending billions of dollars on digital transformation and innovation activities, changing the entrenched culture within these organizations is very difficult. The extensive qualitative and quantitative research for the book stems from discussions with 110 senior managers, directors, C-Level executives, CEOs and Presidents within the retail banking sector.

“The financial services playing field has been changed irreversibly in recent years by a new generation of companies and leaders who have torn the rulebook to pieces, adopting new technology, introducing new working practices, and serving customers whose lives are increasingly orientated around their mobile phones”, says the research. Thanks to the expansiveness of the web and the accessibility of the smartphone, digital disruption is happening all around us, breaking dominant business models in retail, entertainment, travel and telecommunications.

Beyond well-known disruptors such as Amazon, Uber, PayPal, Skype, Spotify, WhatsApp, Netflix and Airbnb, there are even more smaller start-ups hoping to transform traditional transactions, companies and even industries.

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Displaced, Diminished and Disintermediated

In the time it takes to develop an app, digital disruptors can change the way business is conducted and the revenue that can be generated. Leveraging simplified designs and big data, digital disruptors can provide new levels of personalization, contextuality, scalability and functionality at the tap of a finger.

There are an increasing number of new FinTech start-ups attacking the core functions of payments, lending, investing, money transfer, advising, etc. Services such as Lending Club, Funding Circle, Nutmeg, Transfer Wise and Venmo are only the largest (and most successful) of the new entrants.

The banking industry may be more at risk than other industries due to their large size, historically high profitability and tendency to move at a snail’s pace. Bankers are also hesitant to explore new business models that could cannibalize or compete with existing ones and find themselves hamstrung by legacy … legacy technology, legacy processes and, in most cases, legacy thinking.

Banking giants face a further challenge according to the research. With a very high cost of compliance, it is believed to be harder to deliver change at the rate of the new, agile entrants. Many in the industry believe that regulation protects them from the tech startups to a degree. That protective cushion might be slipping away, however, as governments act to promote competition by changing regulation to encourage new offerings.

“It’s plain to see that a perfect storm of competition, technology, shifts in customer behavior and regulation looks set to wreak havoc on the businesses we trust with our money. It’s a matter of when, not if, banking will be reinvented.” – James Haycock

The research discussed in Bye Bye Banks? proposes that incumbent banking organizations are becoming displaced, diminished and disintermediated by new businesses and new technologies.

  • Displaced – by a superior customer experience and price offered by new entrants, enabled partly by the luxury of being free of legacy technology and cost base, and developers closer to the needs of their target customers.
  • Diminished – revenues are squeezed and legacy organizations are relegated to utilities in a market with higher switching frequency.
  • Disintermediated – core competency of the incumbents, such as storing and transferring value, are challenged by the arrival of new technologies, such as the blockchain. In this phase, complete functionalities may be replaced by FinTech start-ups.


“The generation coming of age today might not see a need for a traditional bank at all, just as they don’t see any reason to have a landline, send letters or buy newspapers,” Haycock says, saying that the only reason people still have banks – which they no longer trust, in any case – is inertia. “With 2.5 billion unbanked people in the world, and a billion of those owning a mobile, a digital disruption is now realigning the entire banking industry.”

What is enlightening (and a bit frightening) are the comments interspersed throughout the book, where bankers share their views of the impact of the tech startups, the cost of compliance that the existing players are burdened with, and the contention that customers won’t trust a startup with their money. Some of these comments are encouraging, while some reinforce some of the challenges facing legacy organizations around people, culture and technology.

One of the most disconcerting findings of the research was that top-level managers lack an in-depth understanding of the digital world and its impact, as well as new competitors. While some of this lack of knowledge can be attributable to the age and level of executive interviewed (less apt to be a ‘digital native’), or that the survey was done in the U.K., knowing your ‘enemy’ may be an important first step.


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Bold Response Needed – The Beta Bank

Traditional banks may be able to succeed in the digital age. They have benefits, such as large customer bases, access to rich transactional data and the ability to offer integrated financial services. But, they must find a way to leverage them.

To succeed, however, banks and credit unions need to concentrate on ridding themselves of legacy processes, technology, and possibly, even people. Organizations will need to develop a balanced multichannel delivery model, deepen their data analysis capabilities and play a larger role in their customers’ lives. Banking organizations will also need to continue down the path of digital transformation, service and product innovation, and partnering or investing with FinTech startups.

While the authors believe these changes can deliver results, they don’t believe they will have a great enough impact on the three critical components of people, culture and technology. With this in mind, they proposed the development of a ‘Beta Bank’.

A ‘Beta Bank’ is a standalone organization with a separate leadership and headquarters. Providing a fresh start and offering the opportunity to rethink from the ground up, the new organization would need to consider a new, ten point operating model.

“We believe this approach is the best opportunity for a bank to design a proposition, servicing model and, critically, an organization built for a future where the pace of change is only set to increase, not an adapted version of a business model that hasn’t changed in hundreds of years,” stated the authors. Detail of this new model is provided in the book.


Commenting on the importance of digital as part of the core team within retail banks, Anne Boden, CEO, Starling Bank, said, “Currently, having somebody whose job is digital, in a bank, says a lot about the organizations in that it is something bolted on, rather than something that is fundamental.”

Alessandro Hatami, Founder of Pacemakers and former Digital Payments and Innovation Director at Lloyds Bank stated, “The vast majority of the leadership of banks don’t understand exactly how digital works and are very worried about the digital bank. They have a subset of a subset of a subset of their employee base running large percentages of their business without the leadership knowing exactly what’s going on inside.”

“A concern that the banks have is the arrival of big ecosystems that will replace them, such as Google, Facebook, Apple, etc. These are customer-based organizations. The customers are already users of these environments. If they start pushing financial services to their own customer bases, these ecosystems can potentially take customers away from the banks.”

Finally, speaking at the World Economic Forum in 2015, the Bank of England Governor, Mark Carney, stated that the banking sector is vulnerable to an Uber-type incursion and that such a situation was imminent. He went on to say that the forces driving this change are undeniable.

According to Carney, it is a matter of when, not if, banking is reinvented.

About The Book Bye Bye Banks?

Bye Bye Banks? Book CoverBye Bye Banks?, written by James Haycock, MD of Adaptive Lab and former Telegraph Technology Editor, Shane Richmond, provides an analysis of the forces shaping the future of financial services. The book looks at the struggling business model of traditional banks, where despite billions of dollars of investment in digital technologies, they continue to struggle to keep pace with consumer expectations when it comes to digital experiences and wider market trends.

Free of legacy technology, processes and thinking, emerging disruptors are unbundling services offered by traditional banks and transforming them into a seamless digital service for tech savvy customers. These start-ups are impacting all areas of the banking ecosystem, including payments, lending, investing, money transfer, advising, etc.

The key themes and messages that come out of the book are based on extensive qualitative and quantitative research that was carried out with 110 senior managers, directors, C-Level executive, CEO’s and Presidents within the retail banking sector, and a survey with over 400 nationally representative UK consumers. The book also features commentary with senior experts including, Anne Boden, CEO, Starling Banks, Alessandro Hatami, former Digital Payments and Innovation Director at Lloyds Banking Group, Tom Hopkins, Product Innovation Director at Experian and James Barty, Head of European Equity Strategy, Bank of America Merrill Lynch.

Bye Bye Banks? is available to buy on Amazon and can be read in under 2 hours.

Jim MarousJim Marous is co-publisher of The Financial Brand and publisher of the Digital Banking Report, a subscription-based publication that provides deep insights into the digitization of banking, with over 150 reports in the digital archive available to subscribers. You can follow Jim on Twitter and LinkedIn, or visit his professional website.

All content © 2017 by The Financial Brand and may not be reproduced by any means without permission.

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  1. Good data and nice analysis but overall underestimates the significant role FIs play in society. Bankers are not unaware or unintelligent. This is a game theory play for them. Wait for what works and gains traction then leverage role. FIs are slow but they are always eventual.

  2. Eric Winter says:

    Always eventual? How so? The article is not attacking bankers as unintelligent or unaware. Rather than an ad hominem attack it is laying out the challenges for traditional banks to keep pace with smaller agile startups. Yes, established companies CAN acquire startups which gain traction, but they don’t always do. IBM didn’t acquire Microsoft and Yahoo who didn’t acquire Google or Facebook. If you are saying that money always wins and the powerbase behind established banks will eventually come out on top…. OK. if you are saying that all established banks will survive and thrive, that’s less tenable. Past performance is not an indicator of future results and technological/cultural disruption is a powerful force capable of disrupting even established FIs’ role in society.

  3. Stephen Holmes says:

    I think that this is a thought provoking article/book. Perhaps the biggest challenge and gap I see between the traditional banks and challenger FINTech “banks”… is the laser focus that the challengers have on their Customers and market. Traditional banks (ironically) lack a true understanding of their customer and are not designing products and services tailored to their customers. Startups are on the other hand are quick to seize on underserved customers. Perhaps it is like the frog and the cooking pan… if you perceive change is happening slowly then you end up getting cooked. If you feel the heat of change then you react.

  4. kevin tynan says:

    Nothing much new here. Fintechs disrupting banking – check. Banks slow to respond – check. Bank CEOs are digital aliens – check. Apple, Facebook taking over banking — ah, no news there either. Banking will survive although many banks won’t. How about a little insight into what the landscape will look like in ten years?

  5. a lot of noise about future banks disappearance now looks like ranting about theatre disappearance because of cinema

  6. Fully agree with the sentiment behind the beta bank. In most cases the systems architecture in the large banks is too antiquated for anyone to consider making a change to properly embrace digital delivery strategies without risking a failure of the core platform.

    Much better to create a new operation from scratch, recruit the new dynamic of customer and see if the bank can migrate customers across from the old, traditional operation to the new one. Some won’t want to move over and we may well end up with differential charging.

  7. Jim Marous Jim Marous says:

    It is great to see the agreement that banking needs to change and the desire to look into a crystal ball and determine what banking will look like in 10 years. How about if we try 3 years? We can’t even agree on what payments will look like in that period of time. One thing for sure … it won’t be the same as today and there will be fewer banks wondering.

  8. Edward Berry says:

    Please save the article so that your grandchildren can re-publish again in another 20 years about how banking will be reinvented. What seems to be forgotten here is that regulators want banks to stay just as they are (and so they will) and if the “upstarts” were large enough to even be measurable, the regulators would be all over them. If you can make a loan without all the KYC/AML and other crap the government makes you do, you will have indeed reinvented banking. Good luck with that. Sure the new banking is fast and innovative because it can be – see what happens the first time one of these innovative, unregulated upstarts has a problem and watch that small percentage of customers they control run back to regulated banks. Yeah, banking won’t be the same in five years, but what will be? Banks are slow to respond for a reason. They know that across the globe, in banking, governments control it and aren’t about to let their control be threatened.

  9. T M RAMANI says:

    How true it is. Certainly conventional banking is dying. Already conventional banking instruments are nearing extinction. Customer already do not know where the branch of their bank is located. The three major functions of a commercial bank are deposit taking, extending loans and money transfer. Investment avenues have reduced the importance of bank deposits. Loans are extended by specialized agencies and money transfer is taken care by payment and settlement systems. So where is the need for conventional banking?
    Very good write-up. Congratulations.

  10. Ashok Dutt says:

    Had attended a programme (summer school),in London in 90’s& the topic was shape of Banks in2010.All the speakers predicted that by this time there will be no Brick & Mortar Branch in the world.There will be only back office support for the customers.
    We are still way behind it.Changes are bound to happen,but no need to jump to new processes. Banks have to assimilate it progressively.

  11. Roger G Leblond says:

    A very good article to create discussion, some of this discussion will be true and some will fall by the wayside. Which one will survive is undeterminable at this time. However we will have changes. Which banks will survive is hard to predict. What will the customer do, hard to predict but they will change with or without the bankers. What will the banks do, this will be easier to predict because you can watch what is happening right now and almost predict who will survive. Review of the quarterly call report is a good monitor of the trends. The regulators, they will change also because banking is now on an international basis and the regulators will have to learn how to live with this.
    Fintechs, some will survive and some won’t survive. This is nothing new. Crooks/hackers, they will be watching every step looking for new opportunities.
    This is a great challenge and I have not seen a clear crystal ball with all of the solutions. Chaos still prevails in the banking industry because the challenge has not been this big since the depression.
    Love it.

  12. Regulators control banking, and as long as regulators don’t want fintechs they won’t get in. Bluster is not enough to make it happen.


    The article is thought provoking. Whether it’s conventional banking or future banking, delivery mechanism will be the focal point. The needs of consumers of banking services is changing dynamically. And therefore the delivery mechanism will need lots of updates and beyond. Entirely new mechanism and devices will keeo on generating needing authenticity and acceptablity. The role of Regulator therefore will remain of prime importance. Quick assessment of the needs and available modules will be the call of time. Banking is going to see totally different atmosphere and absolutely dynamic platform in as far asthe technology is concerned.

  14. Very interesting discussion. Having worked at various banks over the years the amount of technological complexity built into the systems just because of the way the industry has consolidated over the years in mind boggling.

    The costs associated with doing even the smallest of the task is huge and if you get it wrong, you are sure to find out about it in the newspapers the following day.

    There will be disruption and it is happening already in areas such as money transfers and FX conversions etc.

    Credit card one big earner for the bank is another area that is ripe for disruption.

    As for traditional deposit taking business, the regulatory overhead is quite huge.
    Plus people want to see the big high rise tower of HSBC to feel safe before putting their money in the bank.

    Will i trust a random startup with my deposit NO, but on the other hand if Google starts a bank ………

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