Future of Finance – Banking at a Crossroads

What is Swiss Wealth Manager, Julius Baer’s vision about the future of finance? Once at the forefront of digitalisation, financial institutions have fallen behind, still feeling the after effects of the Great Financial Crisis. Established business models are threatened by the rise of newcomers, such as in financial technology (FinTech), digital assets or decentralised finance (DeFi). A new cycle of innovation is underway, shaping the Future of Finance. Is banking on the brink of an unstoppable wave of disruptive forces? Julius Baer highlights which events, industrial competitive forces, and regulatory changes have brought us to the current status quo of banking that many believe is ripe for big changes. They also elaborate on a number of topics that they see on the horizon for various corporate segments of banking that could potentially lead to big shifts in the future: Retail/wealth management: Mobile banking, chatbots, future of cash, diem, bitcoin as money, central bank digital currencies (CBDCs), robo-advisers, and machine learning based trade recommendations.Asset management: Active versus passive investment, environmental, social and corporate governance (ESG) investing, thematic investing, personalised portfolios, cryptocurrency (crypto) investing, and tokenisation (physical, digital).Corporate/investment banking: Peer-to-peer (P2P) lending, crowdfunding, special purpose acquisition companies (SPACs), decentralised finance (DeFi), and ‘buy now, pay later’ (BNPL). Finally, they evaluate the competitive positioning of various actors currently competing in the banking industry or might potentially decide to join the fray: Legacy banks: Will the old guard remain relevant? How will they transform to keep up with a faster paced future?Neobanks and challenger banks: Are these the banks of the future or just the same thing with a fancy digital coat of paint?Big Tech: What chances are there that Big Tech will integrate banking functions, making legacy institutions irrelevant? In retail banking/wealth management, they assess that central bank digital currencies will triumph over cash and cryptocurrencies. In asset management, thematic, personalised, and sustainable investments will continue to rise in popularity. Some portfolio managers might buy bitcoin as a hedge against inflation. Tokenisation of physical assets might never happen and tokenisation of digital assets needs changes before becoming feasible. In commercial and investment banking, SPACs might be on their way out. ‘Buy now, pay later’ offers more potential than crowdfunding and peer-to-peer lending. Decentralised Finance (DeFi) is brimming with potential, because of both the massive range of potential use cases as well as the possibility for those use cases to interoperate rather seamlessly. That said, regulators will very likely spoil the party, which could pave the way for a more centralised DeFi. Julius Baer’s prediction is that much of the legacy banking system is going to further transform from a fast-moving sector to more of a utility sector. There will be leaders and laggards. In the realm of neobanks and challenger banks, only the start-up-led institutions with a first-mover advantage have a potential to deliver over the long-run and only the incumbent-led institutions that complement the offering of their sponsors will likely be able to provide lasting value. When it comes to Big Tech, the fear of a full-frontal attack is overblown in our assessment. This article has been exclusively summarised for publication by Gulf Insider. For more information on Julius Baer, visit their website.