Ten years from now, business historians will offer a number of reasons financial services had changed so radically since 2016, from general advances in technology to the regulatory reaction to the crash of 2008. But one factor appears likely to stand out above all the others: the blockchain, a distributed database that serves as the backend of the virtual currency Bitcoin. Today, financial services are investing billions in blockchain technology. Many believe it will lead to a radical simplification of banking and payment systems everywhere—a world where money and other assets take nanoseconds to transfer, cannot be lost or stolen, and require no intermediaries to process.
Investment banking has always been a highly cyclical business, growing when the markets grow, shrinking when they shrink. But a combination of regulation, technology and investment suggests that, as stockbrokers have traditionally whispered in boom times, this time it’s different. The go-go era of investment banking that began in the mid-1980s and thrived up to the financial crisis appears to be on its way out, as the biggest banks shrink in response to regulation and smaller, more focused firms, funds and start-ups take a larger share of the market. It’s becoming a mature industry. So what is set to change on Wall Street then?
Bad loans were at the core of the 2008 financial crisis, so it makes sense that lending may be the banking function that changes the most over the next 10 years, particularly as peer-to-peer lending platforms claim that they can make smarter loans faster and more cheaply than conventional banks. So will banks get ‘ubered’ by these peer-to-peer lending start-ups? A match that pits old and anxious institutions with high capital withholding requirements against young, tech-savvy, and lightly regulated start-ups might sound like a foregone conclusion, but some analysts say the outcome is not as certain as it appears. So what does the future hold?
For consumers in mature markets, the financial technology boom doesn’t seem very exciting. What they’ve seen so far is technology that shaves a few minutes off an efficient process, such as being able to deposit a check by taking a picture of it instead of going to the ATM. But for parts of the world where people still buy and sell things with banknotes, the FinTech boom is likely to be a major event with important economic consequences.
From the crash of 1929 to around 1981, banking was generally considered a fairly dreary business. And between now and 2025, banking seems likely to undergo a digitally driven transformation that will change how we save, spend, borrow and invest. Even as regulators do their best to try to make banking a boring business again, and politicians still vow to rein in the “banksters”, a number of well-financed start-ups look poised to reinvent almost every aspect of finance—and could even make banking sexy once more. First we look at how regulators’ push and FinTech’s pull may be setting the stage for some dramatic changes.