The Day After
We sometimes delve so deeply into our favourite topic that we often forget to think through all of the relevant consequences.
Among my well-known topics and areas of expertise are innovation and the financial technology (fintech) industry, which represent two of my favourites. The latter has a tremendous impact and influence on the traditional financial industry, such as banking, and ultimately, of course, on all of us, both directly and indirectly.
After “The Day After”, few banks, insurance companies, and fintechs will survive in their current forms. Digitalisation will continue its strong progress, and talents will continue to be sought and likely found in the technology industry, but there will certainly be less of a focus on people advising clients.
However, it is precisely the human touch and provision of personal advice that will gain enormously in value. Further, the technology war in the financial industry will cause good human advisors to become an endangered species.
After “The Day After”, we will increasingly lack talent, experience, creativity, and expertise. Moreover and worst of all, there will be few left who can pass down their know-how or nurture the talent of others. However, it is precisely here that lies a promising future for the financial industry, and subsequently for everyone seeking a future in financial services.
It is clear to most that the fintechs and technology giants will change our understanding of the financial industry and its related services forever.
These technology companies will develop new business opportunities, which are based, among others, on asset management, payment transactions, or lending. A consequence of this new competition is that banks will lose business.
Following the logical slump in the profit margins of the incumbents, the inevitable will occur in the form of the reduction or closure of departments and branches, which will then lead to unavoidable staff cuts.
The financial industry is facing the same problems that many other industries, such as the publishing or entertainment industries, have already passed through, with all the related consequences for the people involved.
Digitalisation hurts not only shareholders, who are not benefiting but are rather at the other and less competitive end of the survival chain, but also the people who work in these declining industries.
This last consequence is probably the saddest part of digitalisation, whether we like it or not. We mostly want things that simplify our everyday lives, but not the consequences that inevitably arise from them. One simply cannot make an omelette without breaking some eggs, and this is unfortunately true with regard to the changes that lie ahead for financial institutions.
Changes will increasingly occur at a much faster pace than we are used to and probably comfortable with.
However, it is not the case that all banks and insurance companies will disappear, and that fintechs, FinTech Supermarkets, and technology giants will be the only players left. Nevertheless, many financial institutions will shrink or die in the wave of consolidation. Many fintechs will no longer exist, either going out of business or being acquired by banks or technology giants to survive.
That may be nothing new for many interested participants and readers, but the broad implications and resulting opportunities are probably not yet clear for many.
Many readers have no great sympathy with regard to the consequences faced by the people working in the financial industry. However, we must not forget that many of the employees of banks and insurance companies pay large amounts of taxes and, together with employees from other industries, they directly or indirectly support other industries through their strong purchasing power. In addition, together with other industry employees, they represent an important part of the middle class and thus also help to preserve our standard of living and, more importantly, help overall business opportunities to grow.
Therefore, it must be in all our interests for the financial industry to find a way out of this deep crisis.
In order for financial institutions to survive:
- They must first try to emancipate themselves from existing legacy systems as quickly as possible.
- They have to incorporate fintech know-how and expertise through partnerships or acquisitions.
- They must focus on providing independent and first-class advice.
The first two points are usually very technology based, and this message has already been transmitted to many CEOs and company heads. However, many would say that it is not actually being implemented by many financial institutions or even perceived by the outside world yet. The third point regarding the importance of advisory services to business success seems to be quite developed and strong already, according to top management in the financial sector.
The problem is that advisory services in the financial industry are not perceived by many customers as trustworthy or high-level. The many scandals and severe market corrections that have taken place over the years did not help build a strong reputation for the industry.
Worst of all, Millennials, who are considered to be one of the most important client segments for financial institutions, will more likely trust fintechs or technology giants to be their partners in meeting their financial needs.
Of course, many banks have relevant teams and policies as well as innovation and technology initiatives in place within their companies. However, it often seems that they just have to have them because of demand from the public and media. At the end of the day, these units often lack the degree of consistency and might with the appropriate management authorities that is necessary for survival and success. The employees of fintechs must take these thoughts to work every morning and to bed at night if they want to succeed.
After “The Day After”, like after a natural disaster, much will have to be rebuilt and, in the process, many will become stronger than before. Although this sounds far-fetched now, this day will constitute, in retrospect, the beginning of a future of hope and possibilities. I have thrived in my life only due to setbacks; successes alone often cause people to play it very safe, without reflection.
So, the great opportunities for everyone — banks, fintechs, insurance companies, technology giants, and people — are still ahead of us.
Digitalisation will help us achieve our goals and drive changes, although perhaps a little bit faster and in different ways than we had envisioned and are used to.
Independent advisory services with open solution architecture that come across as competent, creative and, above all, human, will not disappear and will even gain in importance. User demands will be much higher, and excellent opportunities will arise for restructured and forward-looking financial companies.
Many people fear the risks that changes bring, but they should be considered and are also a fantastic driver for the opportunities ahead. Risk is the entry ticket to opportunity.
To put it in another way, “The Day After” could be the day of hope for all of us. It should suit most of us who believe in a better future and who also want to help shape it.
“I only made progress after setbacks.”
