Today banks are facing competition from non-bank firms whose core strategy is based on technological innovation – Big Tech and Fin Tech. What is in store for the future of banking?
Introducing the 22nd edition of the Geneva Reports on the World Economy, co-author and Bruegel scholar Nicolas Véron lays out the challenges that traditional banks are facing given modern technology. Discussions began with an overview of traditional banks, defined by their government charter. While engaging in many activities, in essence, a bank’s business is to take deposits and make loans. These roles are being challenged and the definition becomes an increasingly blurry line with the emergence of FinTech and Big Tech. The Geneva report therefore explores the question: Does technology challenge big banks?
FinTech companies excel in speed, customisation, and are digitally adept. Bigtech companies including Facebook, Apple, Google, and Amazon in the United States, along with Baidu, Alibaba and Tencent in China, boast an enormous scale of reach, and have both public trust and data. Banks remain the upper hand in customer experience, and their policy base gives them the ability to lobby. Véron encourages everyone interested to read the report in order to better understand the dynamics posed between these groups. He then recognises how early we are in the stage of competition, and that many questions are yet to be answered: How will banks evolve? How will banks embrace FinTech? How will policy respond?
The Geneva report outlines previous banking evolutions and identifies underlying themes. What is new with this challenge is how big Big Tech truly is. Libra gave a wake-up call to policy makers that FinTech will continue to grow, and policy needs to be implemented. Véron again encourages all to read the report to further understand the challenges and implications of banking competition.
Opening up the panel to a discussion, Teunis Brosens, lead economist for digital finance and regulation at ING, remains confident that banks will not go away. He poses the question whether Big Tech firms are willing to become banks or not. Emphasising the regulatory role of traditional banks, Brosens sees the next steps to moving forward as a levelling of the playing field both in local and global spheres specifically in terms of data sharing.
Sam Taussig, head of global policy at Kabbage, an Atlanta based small business credit platform, expands on his view of the future of banking, agreeing that traditional banks are not obsolete. From his perspective, customers will use FinTech’s user friendly interface, who will be backed by the regulatory base of a bank. The main concerns here are of anti-trust and data ownership.
Rebecca Christie, a Bruegel scholar, posed questions of redlining and regulation. She questions how intra-bank competition will affect this evolution, and whether fees will remain a setback for banks. After a discussion led by Christie, the floor was opened up to Q&A where the panel shared their thoughts on shadow banks, the need for specialised licenses, and the role of central banks in creating cryptocurrencies.
Notes by Larissa Nowjack
Meeting notes first appeared on Bruegel