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Banks Will End Up Obsolete as Silent-Film Stars, Unless....

While cooking with friends on a recent gray Belgian day, I fell under the spell of "The Artist." It's a 2011 film by Michel Hazanivicius, starring Jean Dujardin and Bérénice Bejo. I recommend it highly for its ideas, visual style and the beautiful performances, which collected the majority of Oscars at the last ceremony.

The story is of a silent movie star who is facing the advent of sound in movies, all in the context of the 1929 crisis. The character, George Valentin, does not understand the new technology, has not seen it coming and doesn't understand why the change is happening. His idea of the beauty and artistic value of silent movies is being stormed away.

It struck me that this is where the banking industry is today.

There is an established order, arguably for centuries, about how banks process money and loans as well as the products and services they provide. But the banks are under pressure today to change, due to several factors:

  • The ongoing crisis
  • The advent of the new, connected generation on social media, which is taking international persons to person transactions as a given
  • The advent of complementary currencies (such as airline miles or Facebook credits) and digital currencies (such as Bitcoin and Ven)
  • The advent of easy, inexpensive person-to-person international payment schemes (Paypal and others)
  • The advent of new business models, dubbed banking 2.0 (Movenbank, Simple, Fidorbank), whose aim is simplicity, a fair or ethical or green ethos and customer focus.
  • The advent of telecom operators as payment processors in mobile payments schemes not involving banks.
  • The un-ending explosion of computing power, storage capacity, pattern matching and artificial intelligence technologies which together enable one to make sense of new applications from the gigantic amount of data being generated daily.

Exactly like the silent movie world of George Valentin. But George doesn't see it. Perhaps he doesn't want to see it. And so the sound movie "happens to him." In the same way, digital banking may "happen" to established banks.

I don't want to spoil the movie for you, so instead here's a very quick summary. Eventually George, with the help of Peppy Miller (played excellently by Bejo), realizes the predicament he is in. He can't cope with the full change of things, but he adapts and, in the end, rides the wave of change in his own and different way.

As you can imagine, this ending fits perfectly with my eternal optimist take.

I do think that if banks realize the massive change that's approaching, they can ride out the wave. They should propose new products and services for the connected generation to enable them to manage their digital assets (and not only money – think of everything from sensitive information like addresses and Social Security numbers to important documents like wills stored digitally) and help them be more accessible (through application programming interfaces), in order to establish themselves as core business intelligence processors.

Do you think I'm exaggerating by comparing the rate of change of today to the shift from silent to sound movies in the 1920s? I'm curious to know. Leave a comment below.

Kosta Peric is the head of innovation at the Society for Worldwide Interbank Financial Telecommunications. His team runs the Innotribe series of events and competitions. He previously was the head of securities market infrastructures in Swift’s sales division and the chief architect for SWIFTNet.


(8) Comments



Comments (8)
Platforms, portals, programmers interfaces, proximity, presence
Posted by ed_dodds | Monday, May 07 2012 at 9:38AM ET
100% correct. Also, we are working on technology quite similar but integrated in a more profound fashion into social media platforms. Think of a "get $" button (similar to the "Like" button). Once you click on this button, you are taken through a TOR system - but more hardened) and all of your PII is protected, including your remote wallet. The encryption methods used are beyond military grade and use biometric, bar code "like" technology, and a unique application of social media information to produce a "key" that is beyond PGP or GPG. This currency unit (i-Bucks is the code name) is like Bitcoin in that there is a mathematically limited supply; however, the exchanges are - like Bitcoin - distributed and cannot come under sovereign attack (like Mt. Gox).

The world is changing and, as you point out, many don't get it. The bank of the future will be a lot less about direct lending and more about technology, privacy/security management, wealth management, peer-to-peer enabling technology, and legal protection(s). Of the top 25 Silicon Valley start-ups (like Infinite Closet, as one example), many are using digital currencies of their own creation. The thing we need to ensure is protecting against "theft" of identity and "wildcat" rogue currencies. We don't need the government or the FRB to do this, but we do need a collaborative, industry led approach. There will be more that "1" winner in this race, but I don't see the right companies coming together to produce the right solution. Bitcoin is a start, but is not the solution.
Posted by Stentor | Wednesday, April 25 2012 at 12:54AM ET
Spot on analogy. If the banking industry, and those providing technology to the banking industry, don't address this rapidly and with added innovation (the sensitive information managment approach) then the consumers will align with non-banking services that do deliver these services. It's not just enabling mobile banking or digital wallet and the job is done - this extends beyond those boundaries to meet the evolving needs of the consumers and how they choose to interact with the digital world.
Posted by bsuy | Tuesday, April 17 2012 at 1:17PM ET
Bonnie and Eric: here is some more information (more like a teaser ;-) ) on a SWIFT Innotribe incubator project we call the Digital Asset Grid.
I'll write more about it
Posted by copernicc | Friday, April 13 2012 at 12:51PM ET
Bonnie and Eric: here is some more info about a SWIFT Innotribe incubator project we call the Digital Asset Grid, going very much in the directions you mention.
I'll write more about it.
Posted by copernicc | Friday, April 13 2012 at 12:49PM ET
Eric's comment about banks acting as on online vault reminded me of our story "12 Big ideas for 2012" in the January issue of American Banker Magazine. The first idea on the list is about how banks can capitalize on changes in the health care industry, which is undertaking a major initiative to eliminate the paperwork shuffle among doctors, hospitals, and other health care providers. The task force charged with figuring out the mechanics of how this new paperless system might work thinks banks could play a role.

The idea is for banks to adapt their online and mobile banking platforms--which consumers already use to transfer their money--to also accommodate the transfer of their electronic medical records from one health care provider to another. "What we are suggesting is banks move beyond that core payments business to data processing," says John Casillas, senior vice president of the HIMMS Medical Banking Project. "Specifically, health data processing between the health care stakeholders."

The full story is here:

--Bonnie McGeer, American Banker Magazine
Posted by bmcgeer | Thursday, April 12 2012 at 12:39PM ET
This was an interesting analogy. Banks are facing new challenges, and just like the actor in 1929, they have to find new ways to cope with those challenges. I think your proposed idea of banks storing more than just money is an intriguing concept--consumers have long trusted banks to hold their money, so why not trust them to hold other information as well--a digital safe deposit box. Wells Fargo launched vSafe in 2008, but recently shut it down due to a lack of traction. The issue is that most people probably don't have the same instinct to protect their digital content as their grandma's diamond ring. From a value standpoint, we're probably missing the point on that. This article on Maslow's Hierarchy of Needs sheds some perspective.Regardless of what action banks take (acting as an online vault or otherwise), the choice will be to drive the change or be changed by someone else.

Where do Financial Products fit in our Hierarchy of Needs?

A final thought: Apple Awarded Patent For Digital Safety Deposit Box
Posted by Eric Lindeen | Thursday, April 12 2012 at 12:20PM ET
This is a great analogy for the real threat to the established banks, however almost all banking executives are aware of the threat, but most banks are unable to respond adequately, to execute in a timely and appropriate manner. Unless there is a fundamental shift in the culture of the banks starting with the style of leadership then the established banks will end up as the silent movie stars who failed to make it into the talkies.
Posted by Itsafinancialworld | Thursday, April 12 2012 at 3:02AM ET
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