Is it true that banks simply rearrange the deck chairs on the Titanic?

We present you a translation of a material about a round table organized by DataArt for leaders of the financial industry. The original article can be read on The Finanser portal, one of the best financial blogs.

This week I had a great evening moderating the round table that DataArt organized. Very interesting people participated in it:
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• Cliff Moyce, strategic consultant, DataArt.
• Chris Barker, Managing Director, Global Development Director of Digital and Engineering Services, Royal Bank of Scotland.
• Mike Powell, Managing Director of Business Development, Head of Finance and Risk at Thomson Reuters.
• Scott Eblen, Director, Nutmeg Production Control.
• Frank Neumann, Managing Director, Quantstore.

The round table was held in the Gunsmiths' Hall . The place was chosen by chance - it reminded of medieval battles, and this atmosphere greatly contributed to the discussion “Financial technologies against banks”.



The topic of the meeting can be interpreted as follows - is the financial industry transforming under the pressure of new technologies or is it systematically evolving by itself? Transformation in this case means that the current financial industry will be replaced by a new business model, and under evolution that the current model will itself adapt to all changes.

Cliff Moyz started the discussion with the fact that existing institutions find it difficult to constantly change and keep up with innovations: they need to manage thousands of workers and take care of the household that they inherited. Just look at the modern giants like Google, Facebook and Alibaba to understand: these are icebergs advancing on the banking industry. Banks, instead of countering impending danger, ignore it and simply rearrange the chaise lounges on their Titanic.

The theme of icebergs and Titanic was a red thread through the whole discussion. Cliff summarized the topic. He noted that technology has changed the modern financial system, and today we need to focus on using various platforms to create financial communities. Unfortunately, banks ignore innovation, because they are too busy with their products and distribution channels.

The participants of the round table came to the general opinion that the business model is gradually changing, but the majority associate this with transformation and evolution. Those who will be able to accept the changes and adjust to them will continue to exist, which cannot be said about those who resist the new trends.

What is change? Until recently, they were associated with the destruction of the frontend "- the relationship between the bank and customers. The idea that mediation should be removed in this area is more popular than ever. Moven, Facebook, Apple, Google - these and other giants of the IT industry are actively developing their relationships with users. But until the infrastructure of the backend changes, it is not expected that there will be any significant changes in the work of financial markets.

However, the backend is also under constant pressure. The technology based on the blockchain protocol is now matched to the very heart of the market structures. This thesis was confirmed by Bob Greyfild, the head of NASDAQ, who recently spoke about the development of technology based on the blockchain protocol, which allows for clearing and settlement in 10 minutes. Such development changes the whole structure and other backend operations. For example, it now takes US stock markets three days for clearing and settlement. If new technologies allow clearing and settlement in a few minutes, the risk factor in trading will disappear. This means that the need for collateral management, custodial services, centralized clearing of counterparties and much more is all at risk. The necessity of the existence of operators is also questionable: DTCC, Euroclear, TARGET2 and Clearstream. It is in this sector that a new wave of transformations will take place.

In addition, a discussion ensued at the round table about whether we are in a financial and technological bubble. There is a lot of fuss about magical updates in this area. Obviously, some of this noise is from nothing, however, there is also quite reliable information that firms such as Stripe, Square, Lending Club, SoFi and Prosper are changing the industry for the better. None of them yet threaten the very essence of financial markets, but how long will this situation continue? If you look at these firms, it is clear that they can not only destroy the old, but also open up new market opportunities. For example, high-risk investments in a small business, or the ability to accept payments where you previously could not pay.

I believe that the client itself is the key to understanding the current situation. He, in fact, does not care about big data, block chains, artificial intelligence, p2p-crediting, etc. He is only interested in simplicity and convenience. The most agile in terms of innovation, the introduction of new technologies and the provision of a better user experience will win.

At the end of the discussion, everyone agreed that the winners would be those banks that recognize the importance of financial technology and are ready for change. Others will be engaged in rearranging chaise lounges on the Titanic, instead of paying attention to the iceberg.