How the digital surge will reshape finance

The main attraction of the new model is money. As rising competition and, in the rich world, low and falling interest rates reduce lending margins (利润，边际), banks need to diversify. Tech-based challengers, for their part, want to increase the stickiness of their apps so they can sell more of their core products, or take a cut of the financial wares (商品，货物) they distribute for others. As physical branches become irrelevant, finance is exposed to the same network economics that have upended other sectors. Huw van Steenis of ubs, a bank, thinks the pandemic is accelerating a “winner-takes-most” dynamic, where popular platforms attract exponentially (以指数方式) more traffic.

Much of the gains could come from the ability to merge and exploit data long siloed within different financial services. Armed with a full picture of users’ behaviour, firms hope to use algorithms that spit out tips on, say, how to save for a dream house. That will make the platforms even stickier and allow them, in turn, to recommend yet more products. Backbase, a fintech (金融科技) that designs digital-banking software for incumbents, is also working on such wizardry. “The more people share their daily lives with you, the more you can give them these additional benefits,” says Jouk Pleiter, its boss.

Many zeros, and many ones

Though it has obliterated incumbents (在位者) in other industries, Big Tech has contented itself with skirting around the margins of finance. Apple has launched a credit card with Goldman Sachs, and a payment tool. Facebook’s payments efforts have made little headway. The number of American e-commerce sites that use Amazon’s checkout button is rising only slowly, says Lisa Ellis of MoffettNathanson, a research firm. Google has teamed up with banks (与银行合作) to offer current and saving accounts; in India, where its payment app is dominant, it doles (发放) out instant loans to shoppers. But Diana Layfield, a payments executive at Google, is adamant (固执的) that it does not want to become “a grand unifying platform”. (That may be because it is eyeing a juicier market. The financial industry, at first slow to move data to the cloud, is becoming keener (激烈) to do so. That will most benefit: Alibaba, Ant’s former parent group; Amazon; Google; and Microsoft.)

Where does all this leave banks? Many fintechs, with their shinier (有光泽的，有光亮的) apps and better risk analytics, certainly have an edge (具有优势) over them. But these firms are not trying to usurp (篡夺) lenders. This is because banking is made of two parts, says Miklós Dietz of McKinsey, a consultancy (咨询顾问工作). “Core banking”—heavily regulated, capital-intensive activities such as running a balance-sheet—makes $3trn in revenue (收益) worldwide, and returns on equity (roe) of 5-6%. By contrast, freer-wheeling (旋转) lines of business, such as payments or product distribution, yield $2.5trn in sales but roes of 20%. Fintechs are after the tasty bits. But for this, they need banks to stay alive.

img

To see how coexistence might work, look to China. The duopoly (双头垄断) of Tencent and Ant use powerful algorithms to price and distribute a fast-growing portion of the loans made to consumers and small firms in the country (see Briefing). Yet the products they sell are held on banks’ balance-sheets. Despite the hefty cut they take—gobbling up a big chunk of the lenders’ profit—banks still accept the deal, because they crave access.

But coexistence will take varied forms across the world. Some banks may be better suited to the new world of tech than others, itself a function of the state of banks today. Dirk Vater of Bain sees a strong link between a bank’s digital performance and how badly it was hit by the financial crisis of 2007-09. European banks, burdened by dud (无用的) loans and low interest rates, spent the 2010s cutting costs rather than investing in transformation. Their apps can do little. By contrast the Commonwealth Bank of Australia, based in a country unscathed (未受损的) by the financial crisis, has built an app that has won plaudits for offering Netflix-like personalised service. It notifies users when bills are due and advises them on their tax returns. Piyush Gupta, dbs’s boss, says it spent the past few months plugging “last-mile” gaps so that complex products, such as mortgages (抵押贷款), can be sold online.

See you tomorrow