If you thought digital banking was the endgame for financial services innovation, then it might be sensible to read the following sentences while sitting down. Financial services are about to get abstract.
According to a thought provoking new white paper from insight-driven experts at Capgemini, the coming phase of innovation will accelerate beyond digital products and services – think current account apps, open banking etc – to something end users won’t see or touch. Welcome to the world of ‘invisible finance’.
To delve deeper into what this could mean for businesses and consumers, Marqeta spoke to Michael Zwiefler and Alexandra Rockermeier, authors of Next Generation Banking, From Traditional Banking to Invisible Finance.
Explaining the starting point for the white paper, Michael described how it began with visualising what the bank of the future looks like.
Future banking characteristics: CX, insights, connected, sustainable and invisible
“We wanted to explore the key characteristics of a future bank, and in the end we came to the conclusion that the bank of tomorrow is essentially obsessed with customer experience, is insights driven, and is sustainable. But more and more it will become invisible. And this led us to ask, what does it mean if that happens?” he said.
In response to that question the white paper outlines a number of archetypal banking models that are showing “great potential” to bring about a shift towards invisible financial services. And Michael and Alexandra believe we are being nudged towards this new reality by six major forces, which are creating the conditions for something akin to a “Cambrian style explosion” in banking.
These are the growth of the digital asset economy, the emergence of platform business models, changing customer experience expectations, intelligent products based on artificial intelligence and analytics, the breaking up of the financial services value chain, and the decoupling of banking licence and balance sheets from offering financial products and services.
Supported by a range of eye watering CAGR data covering the metaverse, gaming, streaming and freelancing, the white paper argues that the biggest impact on banking innovation has been the shift from digital business to the digital asset economy. That is, the emergence of a new environment in which products are created directly or indirectly in digital form.
Digital assets: we’re all creators now
“When you look into the digital asset economy, we also see that there’s this creator economy where everyone can become either a full-blown professional or semi-professional creator. This will result in products, where there is a financial services element, such as a payment function, that becomes an integral part of a non-financial product or service and can no longer be taken apart,” Alexandra said.
This will cause a power shift from traditional institutions to platforms and individuals. A convincing example of this process comes in the form of ‘Tom’, a persona who maximises the earning and social impact potential of his rooftop solar panels using digital networks.
With invisible banking and finance tools, Tom benefits from automated money management systems that optimise returns across fiat and digital currencies, assets, tokens and commodities. This, Michael and Alexandra agree, has the potential to empower consumers and businesses to move away from traditional linear income sources to an ecosystem of wealth generation.
How banks can thrive
But what does all this mean for banks today? Firstly, the white paper advises that bank CEOs need to start preparing for change by mapping both the opportunities and threats that the new paradigm will inevitably present. Crucial to thriving in the future will be an understanding of nine distinctive asset classes: relational, financial, brand, intellectual property, data, digital, talent, sustainability and physical.
Secondly, next generation banks will need to develop a series of ‘superpowers’ based on foundation, direction and focus. Banking leaders will need to focus on delivering new products and services through ‘co-creation’, head in the direction of agile business models, and make flexible IT platforms part of their foundation.
As a modern card programme innovator, we naturally wanted to know how the future landscape would shape payments. As far as Michael is concerned, cards fall into the white paper’s category of “intelligent products based on Artificial Intelligence (AI)”.
“Cards generate so much data and insights and present lots of yet-to-be explored capabilities. And while some of us may have concerns about data use, if the benefits of sharing data are properly explained we do tend to opt in. Cards present a real opportunity to transform user journeys in the invisible finance world,” he said.
Next Generation Banking, From Traditional Banking to Invisible Finance concludes that the digital asset economy and invisible finance are interconnected and pose threats to all industries, not just financial services.
“We are confident that banks need to start now, as the transformation needed for this new world of business will take many years and is different to their current digital transformation initiatives. Banks will also face competition from areas that they don’t even realise exist,” Michael and Alexandra write.
The white paper can be read in full here.
