Going digital
The financial services market is obviously drifting towards digitalization, moving to an online platform. One of the consequences of this process is minimum human involvement. I think that in the coming decade, staff in the financial as well as other intellectual segments of Russian business will shrink dramatically, to a mere fraction of today’s level.
In the 2020s, as Russia increasingly decentralizes the economy, the country will finally begin developing the blockchain technology. This concept can be very promising for the development of crowd platforms such as crowdlending. Even now, modern technologies help avoid complex banking services and regulatory barriers and unite millions of investors and borrowers on one online platform.
So we can see that the inevitable process of crowd platforms replacing banks as the intermediary between the investor and the borrower has got underway. For example, in the UK, crowdfunding emerged in 2008 and now accounts for 8% of the small business lending market – primarily due to the development of the relevant IT solutions. Modern technologies significantly accelerate processes such as raising investment, evaluating the borrower, and resolving legal issues.
Banks cannot work so fast because of their overall inertia and overregulation. After the 2008 financial crisis, credit institutions tightened control and requirements. To keep up their profits, they now have to concentrate on the consumer segment. Banks would like to work with small businesses; this segment in Russia is growing slowly but surely, despite the difficulties with financing. According to the Federal State Statistics Service, SMEs grew by 0.08% in the first half of 2019. But banks are reluctant to rely on them, because such enterprises are high-risk and often insufficiently transparent. Banks find it more convenient to develop one financial model for a large segment of their clientele, launch it, debug the processes, and reap the benefits for years afterwards. For example, a large bank hires 10K consultants, gives them a certain planning tool and a universal “script” for communicating with the clients. This system shows high results with a very low quality of project implementation at all levels.
The war for talent and competition with IT companies
Another feature of the coming decade will be further decline in the prestige of a banking career. Some ten years ago, serving at a bank was considered very respectable. If one wanted to get rich, they found employment with a bank. Today, they go to an IT company. In other words, the intellectual elite no longer goes to banks; rather, low-skilled personnel does. A job in a modern bank no longer generates high income, because financial institutions have standardized their processes to the maximum extent possible and, with the exception of their IT departments, are not focused on attracting creative and critical thinkers.
High salaries are only offered at IT departments. Yet, when faced with outdated systems they need to rebuild from scratch, these professionals do not stay long at banks. Obviously, in the coming years, banks will be losing the war for talent.
In my opinion, banks will soon be competing with IT companies, because fintech provides enormous potential for competition. For example, a bank’s partnership with crowdlending platforms for SME can benefit investors, as well as small businesses, and the national economy as a whole more than a large universal bank.
Hit two keys – you are an investor now
Summing up, banks in the future will have fewer employees than modern ones, because artificial intelligence-based solutions are being introduced now. It is even difficult to figure out whether it is a robot calling a client or a human. “Intuitive interfaces” will be developed that will be able to predict the client’s next steps and thoughts.
Modern finance increasingly employs crowd platforms. To begin investing, one just needs to register, press a button and transfer the money. The system will distribute investment in loans across several dozen companies. All modern companies that plan to significantly increase their market share behave in this way.
To start investing, one no longer needs an expensive consultant who will explain, advise them and show what needs to be done. In the 2020s, financial companies will have to compete with mobile apps.
By Roman Khoroshev, founder of JetLend crowdfunding platform