“By 2030, technology will drive a fundamental shift in banking. It can move from being hidden to completely invisible. This Invisible Bank will be buried within a broader, more digital, connected way of life. Consumers will interact with a personal digital assistant (perhaps the granddaughter of Cortana or the great-nephew of Siri). We’ve called ours EVA, Enlightened Virtual Assistant.” This is how KPMG envisions the future of banking and this will be driven by the evolution of artificial intelligence.
At this year’s Sibos, KPMG’s Fintech Lead Warren Mead showed the audience a video that depicted how EVA works, which was reminiscent of the film Her. Mead highlighted that if we are to move on from the current reality of banking, we will need to move on from scanning cheques and using cash and banks will need to up their game, collaborate with the digital giants and learn from fintechs.
KPMG states that in 2030, banking will be a disaggregated industry with three distinct components:
- The first layer, EVA, is the platform layer. She combines all of the many other services provided by smart tech with banking.
- The second layer is the product, which will become more flexible and customer centric.
- The process layer will bring a new wave of utilities to operate the transactional infrastructure of banks.
“EVA represents a future challenge to banking but if navigated well, it has the potential to offer an array of opportunities for your business,” the KPMG report said. It continued to say that bank branches will become an alien concept in the next 15 years or so and technology firms will dominate the platform layer, as described above. A couple of months ago, the Competition and Markets Authority (CMA) found that consumers are paying more to bank but are not benefiting from the financial services that are available to them.
KPMG report that the benefits of open banking are yet to be seen but improving customer service by implementing mobile apps could make a small difference, especially as “genuine, transformational innovation is rare.” The real problem for the traditional sector is that customers are starting to use other services like Apple Pay, PayPal and Amazon, but some believe this is the natural evolution necessary which will result in consumers using products created by Alibaba and Uber, which will eventually lead to EVA becoming mainstream.
“Some would argue they could develop lifestyle layers to compete in this Platform space. This is one possible scenario, and one that players such as Fidor Bank are relying on. But in a world where Amazon already has Echo - a small speaker that sits in your living room and responds to voice commands - can they catch up? Technology hardware is hardly the core business of banks today who are focused on maintaining costly and outdated legacy infrastructure,” the report read.
KPMG predicts that by 2030, some providers may cater to those who require face to face interaction, but the vast majority will not as it will not be enough to rely on in the future. Banks can own the Product Layer but will need to change as they only fulfil three vital economic functions: “they ‘create’ money through making loans, they give people a safe place to store cash and they facilitate maturity transformation.” Regulation makes this possible and banks can build on these three functions by 2030 - and the bank can also get rid of everything else, the report explains.
What we can expect to see in 2030 is a wave of new services emerge to serve the Process Layer and the competition will be intense. “By 2030 some of this might well be fuelled by Blackchain, but let’s not complicate the debate by pre-judging the underlying technology. A rich ecosystem of new fintechs, major outsourcers and existing industry players such as VocaLink, Visa, the Bank of England and stock exchanges will serve the banks.” Only 10% of the transformation needed has been completed by the traditional banks, but “the Invisible Bank has its roots in technology which is already in the labs of banks today. Some is even live - APIs, cloud-based services, artificial intelligence and mass personalisation are the building blocks of tomorrow.”