08 July 2013

Changing Financial Services Industry

Where the financial services industry is heading? It sounds like a good question in light of everything that I experienced and observed during my recent “adventures” in the various financial communities of New York, described in detail in my New York Chapter.

Well, there is a whole range of the alternative futures, some more and the others less likely. For which future would you bet: bank-based or reliant on capital markets, old or new, in real world or “in cloud”, centrally controlled or not controlled at all, or something more moderate in between the extremes?

It may be that the current “stable disequilibrium” of the economy at unprecedented debt levels that central bankers and policy makers have managed to engineer, will end with an explosion – a tail risk far more likely than the typical macro models would suggest. In that case, much of the financial services industry had to be built up from scratch.

It may also be that the economic and financial troubles will be overcome by a combination of measures: subsidizing banks in less obvious ways via loose monetary policies, creating higher inflation rates which are still tolerable by the “masses”, identifying and resolving the so-called unviable banks which would mean bail-ins of bank creditors, accepting prolonged period of low-growth economy, “throwing” more public money to the innovative entrepreneurs, and finding new smart ways for making “masses” pay (which has so many times happened in the history). This basically seems to be what the rule-makers are aiming for; no matter how unfair one might think this solution is – it’s the main scenario. If it happens, changes in the financial services industry will be evolutionary rather than revolutionary.

Whatever the way of getting out of the slump, one thing is pretty sure about the future (and I’m not original when saying that): new technologies are going to reshape the landscape of the financial services industry, but they do not change human nature. Emotions like greed, fear and hope will still be there whenever it comes to money and power – as will be those who are eager to utilize such emotions for their benefit. (It’s just a quick reminder: you can use the knowledge of the others as input, but make your financial decisions by yourself; there are far too many of those who all know how to use your money for their benefit, and more of them are “surfacing” in changing times.)

Even though it’s early, some trends can be observed.…


Big banks are not all that attractive to work for as they used to be before the crisis. This for a variety of reasons starting from the reputational issues and rather boring job that results from the extensive financial regulations. Thus, chances are that Wall Street guys and/or their money are moving from the heavily regulated firms to the new financial ventures. With reference to one of the conclusions from the IMF’s conference about the financial structure, I’d say: “Follow the bankers” rather than “Follow the banks”.

More traditional banking services will be offered by the new types of the financial intermediaries. Banks turn out to be not at all that irreplaceable as some institutional bankers are suggesting: savers and investors / lenders and borrowers can be connected on crowdfunding platforms, money can be transferred from one place of the world to another using much cheaper (or even free) mobile solutions, maturity transformation function doesn’t necessarily have to be filled by the banks, and so one. Yeah, even money itself can be created in a decentralized way. Innovators with more disruptive visions see every banking function being replaced by the new technologies.

Informal financial education will continue taking up as new times require new skills and knowledge which is missing from the state-approved programs of professional education. More progressive financial advisers are already now attending finance-related meetups and learning from the self-educated experts and practitioners.

As it follows, financial regulatory reform agenda will never be implemented as it is currently being communicated; draft regulations are outdated before they are implemented.

Banks – more precisely bank holding companies – don’t give up that easily; they are aiming to control financial innovations via venture capital, and it seems that some of them are rather well positioned for doing that.

It will be interesting to see what role banks will play in the changing financial landscape: in what extent they will become the ultimate purchasers of the FinTech start-ups, in what extent they will partner with the new ventures and in which areas they will have to step back.

Another mind-blowing question relates to the future of crypto-currencies. As I indicated in my previous post, bitcoin as it is known today will most probably never become to mainstream; yet technologies similar to that one can sooner or later shake the very fundamental design of the monetary system.


  1. Thank you ever so for you post.Really thank you!

  2. Financial Service industry is changing in a rapid manner and updation to less the frauds and scams in the market.Thanks