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Visions about the Future of Banking

by Hans J. Blommestein,Vienna, 2006

ISBN 978-3-902109-32-3

Executive Summary
I will address in this study the future of banking. This will be done against the backdrop of revolutionary forces shaping an increasingly fast-moving banking landscape. The first part of the study focuses on the ultra-long drivers of banking structures and institutions. To that end, I will identify the long-term determinants of our rapidly changing society. The second part will outline the implications of this long-term vision for the strategic direction and business models of banks in the near future. For the first time in history, a global techno-market order is transforming the world of finance, business, and society more broadly, raising urgent questions about the future of banking. A fast-forward modernising post-utopian society, driven by new technology waves and changing human values and preferences, is shaping an increasingly fast-moving banking landscape. Also the nature of financial products is changing, with the demand for products and services that address in integrated ways the life-cycle planning and risk control needs of households and enterprises, increasing rapidly. Bankers of the future will operate increasingly as life-cycle engineers, whereby the larger part of their income is expected to come from offering an integrated approach to advice and asset-and liability management. The architecture (institutional structure) of banks is changing rapidly in response to a transformation of the underlying structure of technologies (and associated impact on transaction and economic capital costs). Technology is also key for risk management and producing new products and services that address in effective ways the aforementioned life-cycle planning and risk control needs of household and firms. This new banking architecture is to be guided by a revised business model that welds together information and transaction capabilities so as to create exceptional value. Change and adaptation is taking place within each type of banking system (relationship-based and arm’s-length). The study argues that a new hybrid type of banking system is emerging, called a relationship-cum-market-based banking system, in which financial engineering and the integration of products and services from outside suppliers play a greater role than before. It is concluded that both the financial supermarket model and the traditional bancassurance model need to be revised. Although the search for greater focus and specialisation has resulted in unbundling (de-mergers) of activities, there is still an important place for merger and acquisition activity in shaping the banking architecture of the future, with an increasing emphasis on cross-border M&As. Cost scale economies and risk diversification are important drivers of M&As.

Bankers on a roller coaster ride
Banking in a fast-forward modernising post-utopian society
Bankers as life-cycle engineers
New banking architectures and business models
The direction of banking in the coming years
The continued importance of M&As in banks’ business models
Concluding remarks

Additional Info
Keywords: banking, technology waves, fast-forward modernisation, post-utopian society, global techno-market order, life-cycle risks and products, new banking architectures and business models, Mergers and Acquisitions, risk diversification
JEL Codes: G2, G21, G22, G34, L2, O14
ISBN No.: 978-3-902109-32-3
Authors: Hans J. Blommestein

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