The Future Shape of Banking

A new report from PwC suggests that, by as soon as 2025 – 2030, a market economy could readily exist without banks of the traditional kind. The report, The Future Shape of Banking, says that as barriers to entry for non-banks to provide formerly ‘core’ banking services continues to decline, the business models of today’s banks will be challenged. However, banks retain some substantial advantages to help them prevent this from happening: banks’ brands and reputations remain powerful, shored up by familiarity, experience and regulation. Trust and brand matter in financial transactions and some of the resistance to alternative banking providers results from a lack of trust in their security.Trust and brand matter in financial transactions and some of the resistance to alternative banking providers results from a lack of trust in their security.

Gabriel Ukpeh, Head of Financial Services at PwC Nigeria said:

“The status quo is no more but the need for banking services remains. Corporate history is full of cautionary tales about incumbency advantage being lost at the turn of technological cycles. Banks still have advantages and alternative providers suffer from a lack of trust but to be part of the future banks need to invest heavily, rediscover and reassert their core role in society, and secure the ongoing support of policymakers.

The success of M-Pesa in East Africa has been attributed to speed, convenience of completing transactions and its ability to reach the region’s banked and largely unbanked population in both the urban and rural areas. M-Pesa thus offers a branchless banking service. Users are able to complete basic banking transactions without visiting a bank branch.

Similar trends have crystallized in the Nigerian market space with the use of eTranzact's PocketMoni and Quickteller platforms. The Financial Inclusion strategy of the Central bank of Nigeria, the drive towards a cashless society and its availing opportunities are evidence of changing landscapes and opportunities for a financial sector whose borders are changing with the entry of new players and cultures.

“The biggest danger for banks is if they lose sight of customer transactions to other players in the value chain, thereby also losing insight into customer behaviours and allowing the power of their brands to diminish.

In April 2014, the Financial Times reported that Facebook was on the verge of securing approval from Ireland’s apex bank to become an “e-money” institution. This would allow Facebook to issue units of stored monetary value that represent a claim against the company.

“New non-bank entrants and technological advances will challenge banks’ business models and fundamental change is inevitable. The only question is how much of banks’ traditional territory the new entrants will occupy.”

Other key points from the report:

  • Banking services will move away from physical, tangible distribution into technology-enabled channels.
  • As technology advances, it will become easier for customers to move between banks and other service providers.