The bankers of the future will be very different from the bankers of today. Different personalities, backgrounds and skill sets.

Let us first understand the definition of a FinTech?

FinTech is short for financial technology which is the innovative use of technology in the design and delivery of financial services. It is transforming the banking world as we know it. Things from artificial intelligence, peer to peer lending, big data, block chain, crowd funding, digital payments and robo-advisors, just to name a few. But why is this FinTech revolution happening now?

Historically, when technologies evolved, the banking industry was reasonably good in adopting and integrating new technologies in order to better serve customers. However, all of that changed in the financial crisis of 2008. During the crisis, banks were busy dealing with the numerous new rules, regulatory requirements and fines imposed on them, which caused innovation to become a very distant priority. At the same time, some of the most game changing technological innovations, that have transformed the way we live have become part of everyday life. The likes of IPhone, Airbnb, WhatsApp, Uber, WeChat for example. This created a gap, between what banks were offering and what customers came to expect, especially from a user experience and convenience perspective and that gap is what the FinTech industry is tackling right now. But that gap was so big, that even non-traditional banking players decided to jump in and capture this opportunity. Mainly technology firms. For example, Facebook currently has 50 different licenses in the US alone that will allow users to transfer money by the Messenger App. Amazon recently experimented offering student loans off its platform. Ali Baba’s financial arm, Ant Financial launched a money market fund that has become the third biggest money market fund in the world, dislodging incumbents who have been doing this from decades. WeChat has become one of the most common tools to transfer money. Not only does it allow customers to buy insurance products or invest in funds directly from smart phones but also enables them to book their next doctor appointment, order a taxi, donate to charity and even find a date without ever leaving the app.

The financial platforms of the future are not going to be the traditional banks but technology firms. A newborn baby today is going to open their first bank account with Facebook or Apple. The traditional banks are obviously worried about the technology firm because they know that many of these tech firms have daily existing touchpoints with customers, and they have more of their trust and confidence. If users are comfortable enough to share photos of their kids on Facebook or buy daily necessities on Amazon, would they not use them as well to transfer money to friends and family or buy insurance products?

What also worries the traditional banks is that there are now thousands of new dynamic FinTech startups offering products that used to be offered previously by them. Peer to peer lending platforms offering an alternative to loans, robo-advisory platforms offering asset management solutions that are not only more transparent in what they charge you but also substantially cheaper. What probably worries the banks the most is that the new comers have the ability to pick and choose the parts of banking they want to get involved in. Mostly they are the most profitable parts. It is very unlikely that a FinTech startup would want to become a deposit taking institution. They are very happy to control the consumer facing part and leave the boring back end to the traditional banks. Things like post rate settlement, reconciliation or regulatory reporting. This will create a new banking model of the future, where the traditional banks are handling the back end (becoming commoditized utility providers to these technology firms) and FinTech startups controlling the front-end customer experience.

This FinTech revolution is also bringing a lot of other positive developments. One of the most important one is Financial Inclusion. Currently in the world, there are more than 1.7 billion people who are completely unbanked with no access to bank accounts, no way to borrow money for college and for whom the only way to save money is to literally stash it under their mattress. It perpetuates a vicious cycle of poverty. However, there is good news as well. For the first time in modern history, these individuals are being offered financial services and it is making a positive difference already. According the World Bank, over the last 5 years 700 million people went from being unbanked to being banked. This is just only the beginning. The FinTech industry continues to work on transforming how financial services are being delivered and consumers will be the biggest beneficiaries. Not only from a user experience and convenience perspective, but also one of access and cost savings. 

Artificial intelligence powered chatbots that mimic human conversations and messaging apps are being tested to replace call centers, which everyone hates. Bio-metric data and voice recognition tools are being tested to replace not only passwords but those tokens we hate even more. Others are connecting FinTechs to the Internet of Things and wearable technologies; embedding banking in the day-to-day life so that in the future, consumers will not even need to worry about. Imagine the car insurance premiums automatically going down because the car knows that the driver has been driving safely and automatically notifies the insurer.

So obviously, the banks are worried about all of this.

Banks have realized that the landscape is changing, and in order to survive they need to evolve. Some banks will succeed in this evolution by being able to embed this culture of innovation and entrepreneurship across the organization but many will not and that will have consequences. Citi Bank estimates that over the next 10 years 30% of the banking jobs will disappear. Some other experts put the number as high as 50%. One banking job out of two will disappear over the next 10 years. Some may think it’s a good thing; there will be less bankers in the world! But this has very serious consequences on any financial center as it results not only in the direct job losses of around 30% to 50% but also all the related economy around. From the law firms to accounting firms, to hotels and restaurants. Some new jobs will be created in the FinTech industry, but in substantially smaller numbers and these are very different jobs with very different skill sets than those required from the traditional bankers today. These are jobs for creative designers and programmers. Not for traders or compliance officers. So what do we need to do? 

Many who are operating in the FinTech community  are working not only with governments to formulate new policies or regulators to enact reforms but also the broader community in shaping this new ecosystem and ensuring that we all adapt to this new reality. But that is not enough. We need a fundamental change in mindset. Where parents are more comfortable with the idea of their kids joining startups or launching startups rather than taking stable jobs in banks. The most important change is probably how we train the next generation of talent. For example in today’s world it is unacceptable that students graduate out of finance programs with no courses on FinTechs. We need to go further than that. Yes, we need to continue teaching core courses like economics, corporate finance or strategy but we need to embed in the curriculum of every finance program of every business school a course on design thinking, coding and product development. This is very important because the bankers of the future and those who shape the future of this industry are not going to be the traditional bankers but rather designers, programmers, and creative thinkers.