On March 19th Paolo Spadafora, CEO of Epiphany, joined the BIAN Open Table on the future of Banks “The Bank is Dead, long live Banking”. The Banking Industry Architecture Network (BIAN) is an organization created to establish, promote and provide a common framework for banking interoperability issues
“We are entering a new banking era.” says Paolo. With PSD2 compliance and the new Digital Era, banks need to adapt and keep up if they do not want to disappear. “Personally, I think I have a radical vision of how banks will become. They are not going to die, they are going to stay there. We need them. But before sharing my vision on the future of banks, let me introduce some concepts to better understand the current banking environment” continues Paolo.
We live today in a time of sharing economy. thanks to technology today, people can share resources, time and expertise. Transactions and technology are already part of everyone’s daily life, and embedded transactions have become the natural evolution and result of the payment environment. “Access, instead of possession” states Paolo. And as Everything is moving faster and faster, consumers expect to have everything in the shortest time possible. “So, it is actually quick access, instead of possession” adds Paolo.
“That’s why everyone likes Amazon: you can purchase anything directly from your phone, and have it delivered at home in a very short time. You don’t need to be in a line for fifteen minutes or more, plus traffic, parking etc.”. As shopping has changed, banking is following. New business models are taking momentum: Third Party Providers (TPPs) and Fintechs and their strength resides in their quickness, smartness and lack of complexity to manage.
On the other side, traditional banks need to manage complex processes dictated by regulations which protect their counterparts. Banks manage for example money laundering, antifraud and compliance, and in this new digital era this complexity is expected to keep growing, everyone wants real time transactions.
“How do I see the future of banking? Simple!”. By 2025 all banks, and especially large ones, must change their business model. They need to act like wholesalers, or like backbone service providers and let Fintechs and TPPs manage the last mile, i.e. the interaction with end users. TPPs and Fintechs are specialized in managing what at Epiphany we call the Human Experience.
Therefore, what should banks do? They should split into two separated legal entities to manage services and products. This way, new branches can be created to be more useful to the end users. Fintechs and TPPs have auditors that can help consumers repair their critical financial situations or invest. Fintechs and TPPs can run branches on their own and maintain the name of the bank. Also, small banks may shift their business models and become TPPs. In short, a segment of the bank shall manage services, infrastructures and all processes complexities which grow because of volumes, transactions response time, security and compliance. All remaining activities can be managed by TPPs which supply digital services through branches (agencies).
This shift will not be easy, but it is necessary. It will take time and effort. Main challenges will be related to culture. Banks could resist to this change for two main reasons: opposition to change or fear to be disintermediated. however, banks do not need to worry about disintermediation: banks need to change, they don’t need to die. Their brand will not disappear, it will just be represented by others. “The more suitable example that comes to my mind to define this process is Microsoft. They do not install software directly, they rely on somebody else to do it. Still, they are known” continues Paolo. Meanwhile, to back this shift, banks must equip with infrastructures and platform modernization which can support an always growing number of transactions in real time, and with costs almost equal to zero.
This is the reason why Epiphany is a member of BIAN: to achieve the goal of modernizing platforms.
We are still missing something in the equation: consumers. “Where are the consumers? Where is their engagement?” wonders Paolo. “So far, all technology improvements have been made for users. We need to build a better kind of engagement and trust. Consumers, especially millennials, need that kind of trust that suits them: digital trust”. Fintechs and TPPs can create a deeper engagement with users because they are able to give them the products they want, the way they want them, when they want them.
“Epiphany is working on technologies and processes that will make this possible, putting Humans at the center” concludes Paolo.
Banks can sleep peacefully, until they embrace the change brought by the sharing economy. They only need to adapt to customers’ new needs and change, thus becoming the backbones for a new kind of banking, more Human, more focused: Human Centric.