What Won't Change in 10 Years

Instead of guessing how banking might change, how will it stay the same?

Maybe not this exactly....

Will artificial intelligence replace tellers? Chief Risk Officers? Chief Executives? Everyone?

Will the blockchain or stable coin usher in the end of cash?

Will we live in the dystopian vision we’ve seen in movies and video games? Maybe with less Keanu Reeves.

There’s plenty of speculation about how technology and regulation will shape the next 10 years. Likely much more than the last 10 years.

It’s worth flipping that concern and thinking about what will persist. An often-cited quote from Jeff Bezos points to the value of this line of thought:

“You can build a business strategy around the things that are stable in time. … [I]n our retail business, we know that customers want low prices, and I know that’s going to be true 10 years from now. They want fast delivery; they want vast selection. It’s impossible to imagine a future 10 years from now where a customer comes up and says, ‘Jeff I love Amazon; I just wish the prices were a little higher,’ or ‘I love Amazon; I just wish you’d deliver a little more slowly.’ Impossible. And so the effort we put into those things, spinning those things up, we know the energy we put into it today will still be paying off dividends for our customers 10 years from now. When you have something that you know is true, even over the long term, you can afford to put a lot of energy into it.

Matt Levin of Bloomberg’s Money Stuff column simplifies banking’s business model into two persistent functions:

There are two ways to think of the primary function of banks. One is a financial model: Banks borrow short-term to lend long-term, they provide credit intermediation, they pool risk-averse savings to finance risky investments, etc.

The other is an essentially technological, list-keeping model: Bank deposits are money, and the job of banks is to keep track of who has money, and move it around when one person wants to send money to another person.

But it’s worth considering what isn’t going to change from a customer perspective. What will people and businesses still need that community banks and credit unions provide today?

Having a feel for what is persistent in customer needs can provide a North Star for organizations. These things can warrant the unreasonable focus and effort that prices and delivery times have for Amazon.

A few general ideas that seem to be outside of any immediate technological disruption:

  • People will still need a trusted custodian of their money/wealth, whatever form it takes - and that someone needs to be under a strong regulatory structure
  • They will need brokers for payments and safe transfer of funds - and arbitration for smaller disputes
  • Communities need a reliable source of risk funding for local investment in things like mortgages, CRE, and small business financing
  • They will always need advice and education in all segments of banking

These seem to align with Levin’s two function theory but tease out the problems or jobs banks are hired to solve today. It also shows the areas Fintech has aggressively pursued, like payments.

The one underpinning element of these areas is trust. Whether through stick or carrot, people have a psychological need to safety with their finances. They need to feel they won’t be taken advantage of and that there is recourse in the case of fraud or other crime.

As the lack of capital flight in 1Q from community FI’s showed, the deposit franchise for trusted institutions is real. Having the trust of your customers flows to the bottom line and is just as real an asset as any other investment.

The call to action is to invest and build the institution of 2033 today.

Bolster the trust and confidence and get even closer with your communities and customers. Lean into your outreach, personalized service, and the 1st party data you have to make all of it unique to your organization.

No matter what technological trends shape our industry and society in the next 10 years, your customers’ needs will persist. It’s up to you to prepare yourself and stay positioned to meet them as an essential, trusted service to your community.

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