Will Banks Go Bust?
The world of finance has been since its inception a rarefied space where new entrants stood almost no chance of competing with the big names that had taken the lions share and then some of the banking and finance industry long ago. The 2008 financial crisis however, left banks around the world facing immense regulatory pressure like the Dodd Frank Act and the Volker rule in the US along with having to untangle themselves from a colossal web of questionable governance and compliance issues
In these years a revolution has been spurring in the tech world where fintech or financial technology now threatens to upend the banking world completely. Fintech firms offer financial services from fund transfers to credit at a fraction of the cost in comparison to traditional banks
Technologies like blockchain which is a decentralized ledger that records transactions almost instantaneously allow people from across the globe to transfer money at minimal cost at speeds faster than any service currently available. Proponents of the power of fintech gives us the example of a Filipino maid in Vancouver who can now send money from her phone to her ailing mother in suburban Manila who receives the funds within minutes by an Uber driver like agent that drives up to her residence to hand her the money for a mere 2% commission. This is no doubt a revolution where relatively high fees are paid to financial intermediaries that take days to complete transactions.
Banks are further threatened by tech giants like Facebook acquiring licenses in many states in the US for their Messenger app to be able to do money transfers and Amazon providing student loans. The banking world is split in to several schools of thought ranging from apocalyptic to optimistic. The former school claims that banks will be reduced to backend operations with fintech firms taking over all the front-end operations and the latter like the CEO of HSBC Stuart Gulliver who envisions a future where banks embrace fintech. He likened the existence of a multitude of fintech firms to a supermarket of technologies where banks can go in and buy and integrate the technologies in to their operations. HSBC has already incorporated facial and vocal recognition technology along with machine learning into their services. These developments raise interesting questions as to what will become of the financial industry in the Maldives. To imagine Bank of Maldives or SBI as backend operations with frontend operations taken over by the likes of Facebook Messenger does seem a tad unsettlingly apocalyptic. And it really is too early to predict exactly how events will unfold for the behemoths of Maldivian banking. The one certainty is that this brave new world has to be faced by us all. The banks will likely adapt and the consumers of financial services will at long last enjoy unprecedented improvements in services offered to them. We can only celebrate the power of creative destruction or in this case, much needed creative destruction.
