The Downfall of Traditional Banking

Following specific requirements from the MNO community, ROCCO is starting research into the banking Industry. This post by our Journalist Polina Hristova is the second of several featuring insights and discussions into the ever evolving world of Banking globally, which is becoming more and more about Mobile Engagement.

The Internet has grown an appetite for traditional banking and more specifically, for tearing it down. In this age and technological prowess, you are ignorant only if you want to be and after peeling the layers of the complex banking system, it has become apparent that it’s facing its very own Block Buster narrative in the face of fintech startups.

Banks, as we know them, might not vanish entirely, however, due to the slow pace of innovation and the rise of cryptocurrencies, more and more grow skeptical of the lethargic structure, nonsensical requirements and instability littered with high fees for every minor operation. Cryptocurrencies are not what they used to be; transforming bitcoins into real currency and vice-versa is a lot easier and the control of your money is entirely yours. Some services even provide debit cards, so you could directly access your money at any given time as if it were stored in a regular bank account, but without the limits of one.

“ I hate the idea that someone is monitoring how much I can withdraw or deposit at any given time. It’s my money and I should be able to access it whenever I want, without the interference or input of the government or banking officials. The same goes for mandatory waiting times on wire transfers—this isn’t a technical issue, banks are free to continue speculating on my money even when I am not able to access it. And, obviously, banking fees are a huge scam. They are simply way too high for the quality of service provided.”
– Simone Margaritelli
Mobile security researcher/developer, Zimperium

Banks are fighting back by attempting to transform into fintechs, but without the technical capabilities to do so, nor the measures to conduct the transformation without destroying their own legacy systems and business, it seems like an unlikely future without the direct acquisition of an already developed fintech start-up and facing the difficulties of integration. Some will succeed and strive, but most will fail to keep up, obliterating their own existence and leaving it to the past – where it belongs.

Banks won’t disappear, but they would most likely end up syphoned into a bigger tech company that can handle the increasing security and flexibility requirements in the increasingly hostile online environment.

But what makes fintechs the more desirable alternative?

Fintechs specialize in a specific sector of the value chain instead of offering a myriad of products and services at once making any process a bureaucratic nightmare; speed is of essence in this dynamic world and fintechs can deliver fast and innovative services with much lower operating costs, allowing them to invest more into satisfying the customers, providing a consumer-centric experience.

Banks can’t focus on and promote only one service while neglecting others; their zeal to catch up with fintechs and offer low cost alternatives would ultimately backfire and cannibalise their profits, unless they learn to focus on a key product or service. The operating costs are sky-high, making it difficult to invest more into innovation which, if achieved, would compromise the bank’s infrastructure and legacy systems. It is nearly impossible for banks to stand out and deliver a different experience due to the heavy amount of regulations in place, imprisoning any impulsive or risky thought. Besides, most big banks belong to the public and cannot take sudden steps in any direction, good or bad, without the approval of shareholders.

It’s a vicious circle in the same sinkhole – banks have grown too big, too slow and dependent to run after the small, independent fintechs. Stability and security-wise, banks do not have the best reputation either – it’s only a matter of time before they lose their value as traditional giants and surrender to the fintechs.

…Or to a telecom – Orange acquired 65% of Groupama Banque in 2016 and has now launched its online banking service with the promise to revolutionise the traditional banking experience with low-cost offerings that will expand into loans and insurance. You can create an account online without any monthly fees if used regularly and if any problems arise, Orange has partnered up with IBM to offer confused customers the AI-powered Watson bot to help with any issues. The online app allows users to shift money from one Orange account to another via text message while providing the option to directly monitor the transaction. Third party fintechs will be given access to Orange’s new financial services to create a flexible, cross-platform experience for millions in France or that’s at least what Orange hopes for.

We have seen it time and time again – the slow but steady disappearance of businesses that can’t or don’t know how to innovate; it’s a fact observed repeatedly throughout our existence and many welcome the change, hoping for a more stable and secure system which will allow users to regain control of their own finances.


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Photo used in our Blog post by Olu Eletu