Some time ago, I read an article by a former employee of a video store, which vanished from the surface because of the supremacy of video streaming services like Netflix or Hulu. Although the store survived much bigger competitors such as Blockbuster, it couldn’t live longer with constantly declining customer base. People simply changed their preferences and chose not to bother with going out to a store when they could rent a movie from their couch in the living room with couple clicks on the remote controller.

Video stores disappeared when a more convenient way of serving the same purposes emerged. Even though the stores could provide their customers with a better service — valuable advice of experienced, dedicated staff and a wider portfolio of movies — the comfort of an instant access to a huge selection of films straight from a smart TV or a computer was more compelling to the vast majority of clients. Humans chose a full self-service, with no need for interaction with other humans.

Is there a pattern?

Similar, although not that drastic, situation happened to regular stores — especially with consumer electronics, music and books — when online retailers began to offer the same products at lower prices. Classic shops still exist, albeit they have to struggle for life. Clients search for goods online, read opinions and reviews, then buy wherever it’s cheaper. Sometimes they visit regular stores just to see their picks in action, not for shopping. They don’t even look for any advice from a salesperson, as they already know it from online forums, reviews or charts.

How does this relate to banking?

Is this the path the world of banking is going to follow soon? I guess so. With so many fintech companies playing on the financial market and offering products and services competitive to the offer of big banks, clients will choose providers with attractive fees and interest rates, better availability and smooth user experience. They will prefer smart and fast online solutions over help from a qualified staff to do the same job of e.g. applying for a loan or a credit card.

Obviously, there are many people who would still want some assistance of a consultant, but this also can be done online via chat (text, audio or video). In the third decade of the 21st century, there is absolutely no need for a face to face contact with bank clerks in their brick-and-mortar branches. Even the ATMs become less and less important as the world goes cashless.

So banks will be gone, right?

Will then banks extinct just like dinosaurs and video stores did? Not exactly. They are and they will be needed, but not in the form as we know them: huge organisations with thousands of employees in hundreds of offices. Banks will provide secure storing clients’ money as a wholesale service to third parties, which bundle this feature with other products and services to make a unique offer for their customers.

What will happen to the employees?

One might say: “OK, but what about the financial advisers and their expertise?”. Well, they would still do their job, it’s just a matter of changing the communication channel into more appropriate one for the Digital Era. Advisers could be reached through online chat/VR systems for clients or via paid services for everyone else. And, as it’s the 21st century, we can’t miss all AI solutions available now and in the future. They are already good and soon they will be even better. Artificial intelligence will take over many tasks now done by people in call centres or branch offices. Moreover, it would be able to give better financial analysis results for a fraction of cost and time needed by human experts.

Will the banks last forever?

There is only one thing, which could really make banks disappear once and for all: bitcoin. This currency is purely binary, virtual and decentralised, so it doesn’t require any special buildings to protect the “real” money. However, bitcoin relies on computers and they rely on electrical power, neither of which are as resistant to unpredictable real world circumstances as gold, silver and other noble metals, which need to be stored securely somewhere.

The Digital Era means enormous changes in our lives and economy. Some businesses will fail, some will thrive, as it happened in the past during historical leaps caused by technical progress and globalisation. Banks will not fade away like video stores but, definitely, evolve into something more virtual than today. After all, virtual reality is the sign of our times.

How to make sure your bank stays in business?

Changing and adapting is the ultimate answer. The more a bank is open towards innovation, the likely it is to stay in the future. One of the most essential items for evolving is the data. This is where APIs come handy, and every bank should get one. A bank should not only successfully comply with PSD2 regulation and let other parties access the banking data of its clients, but it should also obtain APIs to other banks to stay in the game.

Posted 27th of July 2016 by Darek Rzeznicki