Threats to Traditional Banking

Traditional banks, reliant on physical branches and tangible assets, are facing significant challenges in the coming decade. According to Brett King, a global futurist and author of “Bank 4.0,” digital transformation is no longer optional; it’s vital for survival.

In a recent discussion with the Daily Star in Dhaka, King emphasized the importance of both technological and cultural adaptability. He stated, “If you can’t change your way of thinking to focus on technology, you’re in trouble.”

Evolution of Banking

King categorizes the evolution of banking into four distinct eras:

• The first era (bank 1.0) was centered around branches and signatures.
• The second era introduced ATMs.
• The third brought Internet Banking.
• The fourth era is characterized by mobile-driven embedded finance.

The anticipated Banking 5.0 will integrate artificial intelligence, potentially phasing out traditional products like credit cards and possibly even physical branches. Banks, in this new foresight, should concentrate on core services like money storage and access, emphasizing immediate, digital delivery.

King remarked, “None of the products we know from past banks have in the traditional sense exceeded the next 10 or 15 years. Technology transforms them into a banking experience.”

Unique Opportunities for Bangladesh

Bangladesh finds itself in a unique position, grappling with only 40% financial inclusion and minimal credit card use. However, King sees promise in this challenge. He suggested that the country doesn’t need to follow traditional banking pathways; it can leap straight into delivering contextual digital credit.

For instance, someone shopping could get instant loan offers on their phone, negating the need to visit a bank. “You don’t need to go to the bank to access your credits. That emergency cash will be available immediately,” he explained.

King highlighted the ongoing changes across Asia, citing mobile financial services like Bkash as paving the way for this transformation.

“Countries like Bangladesh, India, and China are leaning more towards wallets instead of traditional financial systems with physical cards. Mobile access to financial services is proving far more critical than bank branches,” he added.

Rather than trying to patch up the traditional banking models, King proposed that Bangladesh should endeavor for broader access through mobile technology.

Pointing to a global trend, King noted that physical bank branches are already on the decline. His upcoming writings indicate that by 2015, the world had hit the “peak branch,” a decline that has accelerated over the ensuing years. He commented, “The internet didn’t change banking much. But mobile has created a fintech revolution, leading to non-banking companies offering banking utilities.” Examples like Paytm in India and Bkash in Bangladesh illustrate this shift.

The Challenges Ahead

In Bangladesh, where a significant portion of the population remains unbanked, cutting delivery costs becomes crucial for fostering financial inclusion. Biswasdakar, CEO of UAE-based fintech company Filps, joined the conversation, pointing out the grassroots issues impacting Bangladesh.

“If we really want to grow the economy, microsmall and medium enterprises need access to capital,” he emphasized.

However, he noted that small shop owners often face higher loan rates compared to larger businesses, which seems unfair. Dhakal highlighted how partnerships between banks and technology platforms, which integrate seamlessly into daily life, can revolutionize access to financial services.

For example, he posed a relatable scenario: “If I’m riding my bike as a Pathao driver early in the morning and I don’t have TK 2,000 for fuel, how can AI in banking make my life easier?”

The vision, he suggested, is to develop an AI-powered marketplace where banks compete to offer the best rates to micro-customers.

This democratization, as King noted, would reduce human involvement in banking processes, thus minimizing costs. “This means that the cost of serving one individual customer is zero,” he stated, highlighting the potential for making profit even while serving previously unbanked populations.

Apart from technological advancements, King cautioned that challenges like climate change also require urgent attention in banking. Issues such as floods and soil salinity pose risks to agriculture, housing, and small businesses. He argued that banks should prioritize affordable loans for climate-resilient infrastructure.

Looking ahead to 2050, Bangladesh could experience a 15% reduction in food production due to environmental factors, suggesting that banks need to adapt to offer affordable financing for such critical infrastructure.

The Path Forward

According to King, the adaptation of technology will be pivotal in determining the future leaders in banking over the next decade. He believes the necessary tools for revolutionizing the banking landscape are already available, and with a mobile-first approach, Bangladesh can directly enter the AI-driven era.

“If you’re looking for a model bank to emulate, don’t turn to HSBC or Deutsche Bank. Look at Alipay, Webbank, Bkash, or Paytm. These are technology companies that are redefining banking operations and set the framework for future success,” he advised.

King also pointed out that the world’s fastest-growing banks today are tech firms or wallets rather than traditional banks, indicating a clear trend: “By 2035, all the largest banks will be technology companies.”