A Banking Career – Yea or Nay in the Era of Fintech

I started my banking career in the early 1980s. Fresh out of college, I joined Citibank India. That marked the start of an immensely interesting and meaningful career that has spanned nearly 40 years, multiple roles and countries. If I could go back in time, would I choose this path again? Without a doubt, yes.

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30 Apr 2019

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I have found banking as a career highly interesting for the reason that it intersects with the economics and politics of the day. But banking also serves a noble purpose: it greases the wheels of life and is pivotal to the functioning of economies. By encouraging savings and making credit available, banks help companies to prosper and individuals to grow their wealth. Certainly, we must watch the hubris and excesses that have given our profession a bad rep in recent times. But the fact remains that banks serve an important role in the well-functioning of economies, and notwithstanding the fintech threat, remains a good place to build a career.

My optimism is not untempered by a huge dose of reality. In the last five to seven years, the banking value chain has been unbundled, whether in payments, credit or funds.

Ninety-nine percent of the so-called competition comes from small fintech startups. And by and large, most of these startups will end up being collaborators with incumbent players. The reason is while they have found a new way of doing things, they still have an important handicap, which is the challenge of acquiring customers. Customer acquisition is expensive, so for most of them, it is easier to plug into an existing bank customer base and work with the bank.

The residual 1% are the techfins, the platform companies such as the Facebooks, Googles and Alibabas, which already have huge customer bases and are therefore a much more potent force.

Take Alibaba. It is one of the biggest payment companies in the world. It transfers more money through Alipay than many banks. It does hundreds of millions of transactions. It is one of the fastest fund gatherers in the world. Yu’e Bao hit US$100 billion in just over a year, and today, is the world’s largest money market fund. It has a rapidly growing loan book. Its cost of credit is lower than many banks. At the same time, it is not regulated as tightly as banks are, creating an uneven playing field. 

These platform companies do pose a serious threat. But in the near term, it is unclear who will win: start-up or incumbent.

This is because banks don’t come to the battleground unarmed. We do have some things going for us: an understanding of the regulatory landscape, risk management as well as robust networks and infrastructure. Some of the tailwinds that the large China techfins have, such as a degree of regulatory arbitrage, are also hard to replicate outside their home market.

Our weaknesses include our lack of nimbleness and legacy technology. But these are not endemic to the industry and there is no reason we cannot leverage the latest technology available or transform culture and mindsets. At DBS we have done both. 

DBS’ mantra since 2014 has been “What would Bezos do?” This is short-form for the need to think and act like big tech. In the last five years, we have moved from legacy technology – big mainframes in large data centres – to cloud-native technology. We have made embracing customer centricity a priority and created a pervasive startup-like culture across our entire 26,000-strong organization.

Looking into the future

Over the medium term, I foresee banking evolving in potentially important ways.

First, the nature of participants will change significantly. Many of the incumbent banks will fail to make the changes needed to succeed in the new world, and will be unable to survive. On the other hand, there will be an increasing encroachment from big technology companies with large consumer bases into many parts of the system.

The banks that survive will probably have extended their own business models. Banks have traditionally operated as pipe companies, working directly with customers for provision of financial services alone. As the boundaries between industries shift, banks could evolve into platform companies, learning to work with partners to create a seamless banking experience that is integrated into the everyday lives of customers. We are already beginning to see this with several banks launching marketplaces. At DBS, we have launched marketplaces on our website, selling cars, property and electricity.

The rise of blockchain or distributed ledger technology will supplant the current financial market infrastructure. Historically, banks have acted as trusted guardians of financial activity. With the distributed ledger, however, anyone can digitally access and trade anything of value – stocks, bonds, digital property – quickly, securely, transparently and inexpensively, without the need for an intermediary. The role of the bank as the middleman will need to change significantly.

If countries ever move to central bank digital currencies, the role of banks will change completely. We are seeing massive headway in the cashless push being made in the Nordic countries, as well as in countries like China and India. When combined with distributed ledger technology, we could technically reach a stage where central banks could directly distribute digital currencies to every citizen in the world. Of course, the challenge of credit intermediation would still have to be addressed.

Last, access to big data, and use of artificial intelligence will create significant opportunities for new services, and better ways of providing existing services. Improved financial inclusion is likely to be a positive outcome. At the same time, it will be important to guard against potential unintended consequences. Too much information could equally lead to greater financial exclusion, and in the extreme, the destruction of business models like insurance, which are based on socialization of risk.

So what will banking in 2029 look like? It will likely look very different from what it is today. However, the fundamental role of the financial system (mobilizing savings, providing credit, moving money and greasing the wheels of commerce) will still continue to exist. My firm belief, therefore, is that if we can transform ourselves, remain relevant and continue to serve a higher purpose, banks won’t disappear, and banking will continue to be a rewarding career for generations to come. 

Piyush Gupta is CEO of DBS.

Date

30 Apr 2019

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