Image source: Financial services commission (http://fscblog.kr/)

Image by Financial services commission (http://fscblog.kr/)

By leverage on the internet technology, any business process that can be digitized, it would be cut off. Phone will be digital cheque book, people pay in the electricity on their phone instead of heading to the cash counter, trading shares, and fund transfer. 2016 is the year of Fintech revolution.

Drastic grow in the internet and mobile technology, any business process that can be digitized will be replaced by machine.

BANKS will cease to exist by 2025

Business model change as more people have higher access to the internet technology. Some of these new technologies will be challenges to banks.

Fund transfer – Solution like TransferWise has turned the traditional and expensive banking solution to sending money across borders, and enables small firms and individuals to transfer money far cheaper than it was previously possible.

Peer to Peer (P2P) lending – The concept is that a crowd of lenders will provide small sums of money each to lend to borrowers via the P2P platform. The pioneers of P2P in the UK are Zopa (started in 2005) and Prosper in the US (2006) and they have lent a cumulative sum of £1.4 billion and US$6 billion respectively. Zopa has 53,000 investors and 114,000 borrowers while Prosper has 2 million members (investors and borrowers). In Malaysia, the Securities Commission has licensed 6 operators to provide P2P lending services and they expect to start operations by 2017. I believe P2P will be an even bigger success in Malaysia.

Equity crowdfunding – It is the process whereby people invest in a company (non-public listed) in exchange for shares in that company. A shareholder has partial ownership of a company and stands to profit should the company do well. In Malaysia, we have already seen some success stories that companies raising anything between RM300,000 to RM3 million in equity funding on these platforms.

Big data

Technology companies like Uber and Waze that have huge amounts of data on their users and if they ever get into financial services in a serious way they will be the ultimate threat to banks. Facebook could easily be a P2P operator with more than 1 billion users who are both potential investors and borrowers. Alibaba already facilitates e-commerce transactions for its users and will likely do more as financial transactions could be a lucrative business for them.

What would the Banks do?

In the age of digital, banks are facing their own Kodak Moment. But what can they do? Be technology-centric, decommission the existing business and build great things for the future. They have to do this before the tech giants get into banking in a big way.