➤ Banks will not go extinct, but the universal banking model will.
➤ Banks tend to embrace financial technologies in three ways: build, buy or partner.
➤ Generative AI has the power to be the most transformative technology in the banking industry over the next five years, but implementation is challenging.
Banks, often accused of being "dinosaurs of the digital age," will not go extinct but will be forced to change as financial technology reshapes the banking industry, according to experts speaking during S&P Global Market Intelligence's Tech in Banking webinar on July 6.
The current model of universal banking, whereby banks cater to customers of every size and serve every step of the value chain, is going to go extinct, said Conrad Ford, chief product officer of London-based Allica Bank Ltd., which provides digital banking services for small and medium-sized businesses. That model came into being because people chose a bank based on proximity of branches, but branches are expensive and their usage has collapsed.
"I think we're going to see that really play out over the current decade," Ford said. "I think, by the end of this decade, by 2030, we'll have a quite different view of banking."
Banks are likely to evolve to focus on particular segments or product types, Ford said, giving the example of a UK bank that focuses on agriculture.
Those that embrace new technologies will evolve and thrive, according to Janet Bastiman, chief data scientist at Napier AI.
"We keep talking about dinosaurs as ... these things that died out, but we need to remember that some of them did and others evolved and now we have birds," Bastiman said.
How banks embrace financial technology
Banks tend to embrace fintech in three ways: build, buy or partner, said Mohsin Ali Khan, director of Europe, the Middle East and Africa desktop business development at S&P Global Market Intelligence.
Building tends to be difficult since banks are often burdened with legacy infrastructure and fintech is not their primary focus. Rather, they are focused on generating income through lending as well as fees and commissions, so they tend to buy or partner.
"This improves the speed to market in terms of the products that they can bring to the clients and the other technologies that they can adopt internally," Khan said.
Another avenue is through funding fintech companies, Khan added. This can be a relatively safe option since banks do not have to invest a lot of money, time or resources. Furthermore, they can test an idea in a "sandbox environment," where a fintech company is still not officially part of the bank.
"They can test it out and then eventually bring it back and perhaps acquire the fintech if it resonates with its client base or with its overall strategy," Khan said.
Adoption of fintech, however, is not without its challenges, said Alina Timofeeva, a principal at Oliver Wyman. One hurdle centers around the culture of how the teams will work together and integrate. Another is regulation, with security, compliance and the regulatory processes potentially causing inefficiencies or creating more work, Timofeeva said.
GenAI in banking
Panelists agreed that generative AI (GenAI) could have a transformative impact on the banking industry over the next five years.
Allica Bank's Ford said GenAI is a tool for individual contributors, the people who do the day-to-day jobs. The technology will have a real part to play in making relationship managers more efficient and effective and enabling them to serve customers better, Ford said.
However, financial institutions need to be "extremely cautious," given that GenAI takes in a lot of personal information, Ford said.
Timofeeva agreed that playing with GenAI involves thinking about aspects such as accountability, oversight, transparency, data privacy, security and bias, as well as the fact that confidential data could leak.