Possible Scenarios for the Bank of 2030

Gerald Grattoni, Head of EMEA Financial Services Industry Solutions at Intel Corporation.

You’re probably used to seeing predictions from IT companies. Each January your news feeds will be full of speculative articles for the year ahead—most of which are the same every year. And this twelve-month outlook seems to suit an industry like ours, where banks plan on a 24–36-month cycle at most.

But at Intel, we like to look a little further in to the future.

Our product design cycles are long by any standards. The processors and memory technology that we release today began life ten to twelve years ago, and we don’t just take our design cues from microchip engineers. We gather together views from economists, anthropologists, and technologists who all contribute to our R&D process and help us understand the future not only of chip design, or even IT, but of society.

At the SAP Financial Services Forum in London I shared our vision for financial services at 2-, 5-, and 15-year horizons. By the end of 2018 organisations will start to see transformative business outcomes from the digital platforms they’ve built, enabled by on-demand compute, connected devices, and the insight derived from big data analytics. Move forward to 2022, and we see artificial intelligence start to win real trust as its capabilities mature, as well as real-world application for distributed ledger technologies. By 2022, banks must also have a clear idea of how they will deal with the disruption caused by fintechs, whether that’s incubation, investment, partnership, or acquisition.

But perhaps you’ve heard this before, so let me concentrate on 2030.

Stripped back platforms or full-service hubs?

We see two divergent directions for banks in 2030: they could become a core transaction platform or a fully-featured lifestyle company.

In the first example, banks lose their customer-facing infrastructure, including branches, websites, apps and sales staff, to become infrastructure providers, concentrating on transactional services, capital financing and loans, and handling all aspects of regulation and compliance. They will then let other consumer-focussed companies connect to this service to provide a user-focussed front end. Banks effectively become B2B companies, letting B2C companies handle the interaction with the services’ end users. These organisations can then provide finance products as part of their regular business models, or offer them as benefits to employees, for example.

This model offloads the customer experience onto organisations for whom customer experience is their bread and butter. Today’s digital giants like Facebook, Amazon, Apple, and Google continue to beat banks when it comes to smooth interactions, and they also seem to know how to make the most of their data, while banks continue to sit on much more, collected over decades, but untouched—or untouchable. However, the model requires the industry to open up completely. We’re talking open source, modular technology with open standards, so that data and money can flow freely. In this scenario, the major technical decisions that banks will have to make will concern infrastructure and security, rather than usability and cost.

The alternative route is the complete opposite. It sees banks embracing the data they do have to gain better insight into their customer than even the most data-savvy web company can. Arguably, the transactional data that banks hold gives more of an insight into a customer’s habits than their online activity. While someone might like Ferrari on Facebook, and spend a lot of time ogling supercars online, their bank knows that they get their car serviced once a year at their usual car dealership. Here, the obvious question is: ‘how do banks start to mine the data they have in a meaningful way?’ Or perhaps a more provocative way of asking that question would be: ‘banks have been sitting on data for years without deriving much value from it. What needs to change?’ Most readers will know that banks are struggling with the burden of legacy technology that stifles innovation, eats up budget, and proves a headache to maintain. Replacing it with a modern platform designed to support agility and offer the architecture for big data analysis will be crucial. There’s no easy answer here, but I suspect many banks know how they should tackle the issue. Putting that into practice is a different matter!

The bank as data custodian

Another possible eventuality, which could happen in either of the two scenarios above, is the idea of banks as custodians of data. As know-you-customer (KYC) initiatives improve in the years until 2030, possibly nearing 100-percent accuracy, banks could become the holders of a single version of the truth about individuals, which could then be shared with other organisations—government, telcos, other banks—in federated systems. Banks certainly benefit from a position of trust when it comes to data security. But the big challenge lies in establishing the architectures that will enable this federated data infrastructure.

Reinventing capital markets

One fourth and final possible scenario may worry some people currently working in banks: the levelling of capital markets. Put very simply, financial advantage is built on the asymmetry of information. When you know something someone else doesn’t know, or before someone else, you’re at an advantage. With the increasing proliferation of connected devices in the internet of things, data on every aspect of international commerce will be made more publicly available. With artificial intelligence standing to become more trusted to make decisions, the risk of transactions will be lowered, meaning lower rewards and a less lucrative market for investment banks.

It’s easy to read these prognostications, shrug your shoulders, and think ‘It’s a long way off; we’ll see what happens’, but think again. People who work in tech in financial services industry are struggling to cope with the long-term effects of technical decisions that were made 30 or 40 years ago. Whether you see my predictions coming to fruition or not, you should be planning your bank of 2030 today.

For more information, visit the Intel Financial Services website.