Although banks are and always have been the driving force in financial services, digital technologies have been slowly changing the face of banking and finance.
Despite making room for technological advances from basic consumer needs such as debit cards, all the way through to mobile banking apps – traditional banking is under threat from new financial methodology, as noted by the Financial Times.
Although banks have taken on new technology since their inception, banking in general is becoming much more agile, thanks to computer-based lending networks.
These networks are then stripping away the consumer need for face-to-face banking and carrying out transactions in physical bank buildings.
Traditional banks and wealth managers are among those who are now facing threats from new entrants to the banking industry who are offering their consumers this lack of physical contact.
It’s possible now for consumers to get sound financial advice from their computers and it’s these along with new lending networks that are seeing the digital financial market flourish.
Professional Services firm Deloitte published a paper this year, detailing this banking switch from traditional financial providers to unregulated digital incumbents.
The paper, entitled ‘Deloitte’s perspective on key themes of AFF in 2015’ asked “what considerations should financial institutions be taking into account to successfully position and compete with the new breed of hyper-competitive players?”.
Deloitte’s paper outlines these “hyper-competitive players” as digital start-ups, which are brands like TransferWise.
The Financial Times has said that both of these brands have targeted important parts of traditionally regulated bank’s business models and are taking them over.
These new “players” are able to do this as they are not privy to the same regulations as found in the traditional banking structure.
As such, digital financial companies like TransferWise can use the same structures as banks but they also have the freedom to improve on these processes, as they are not confined by the same legislations.
Similarly, the Financial Times has reported that peer-to-peer lenders Zopa and FundingCircle are able to sidestep banks completely as they can give borrowers access to funds through crowdfunding.
In this way, modern businesses are able to grow, without the need for a bank. Take for example taxi-service Uber and travel accommodation provider Airbnb; both of these businesses initially funded themselves with the crowdfunding service, Kickstarter.
Social trading services and social investment networks like ayondo are also affording those who are new to the trading market the opportunity to trade on global networks, potentially for the first time.
According to the report by Deloitte, its authors believe that digital finance changes are expected to grow in all areas, however one area of difficulty that the professional services firm expect to see slower growth is in Bitcoin payment.
The paper says that as there has been “regulatory oversight and security concerns” it’s unclear how Bitcoin will become adopted into mainstream use. It also asks what the “future of cryptocurrencies [might] mean for traditional financial services”.
Although the future of Bitcoin remains unclear, what does seem to be certain is that digital financial services appear to be set for further growth and that banks will need to make room for the changes to banking that accompany this growth.