The Future of Banking

Bracing for Impact

Though the principles of the banking trade may appear somewhat abstruse, the practice is capable of being reduced to strict rules. To depart upon any occasion from these rules, in consequence of some flattering speculation of extraordinary gain, is almost always extremely dangerous, and frequently fatal to the banking company which attempts it. — Adam Smith, Wealth of Nations (1776)

This article is a continuation of my two previous articles that examined the history of banks titled “You Can Find Silicon Valley in a Bank, Not a Bank in Silicon Valley and the present state of play titled “How to Build a Bank”. If you haven’t read the previous two articles, I strongly recommend you do to get a full perspective of the future of banks. This article is not a prediction of the future rather it attempts to provide a set of tools and frameworks to imagine the future of banks.

Introduction

It is almost impossible to predict the future of anything, let alone an industry as complex as financial services. At this point in time, this article is titled ‘Bracing for Impact’ because the technological innovations that are re-shaping financial services are evolving much more rapidly than regulations can keep up with. Visually, a fast paced asteroid heading towards earth that is bracing for impact. Not the most rosiest of pictures but definitely something to know about.

As long as these innovations signal a simpler, cheaper and more user friendly experience, there will be strong business and economic arguments supporting them. In other words, strong demand from the consumers will make the changes (the asteroid) inevitable. To me, this situation doesn’t seem too unfamiliar. As an auditor in a previous life, I have witnessed the growth of financial derivatives — products of ingenious financial engineering which outpaced regulations at the time. Today, it is engineering of a different kind. Although, mathematics is the common link.