THE FUTURE OF BANKS BETWEEN POOR PROFITABILITY AND BIG TECH
Parma, 9 November 2017 – Technology and digitalisation are fundamental to the survival of banks : this emerged from the conference on ‘Digital banking: change drivers and new strategies in the European market’ organised by Scouting in collaboration with the University of Parma – Csac.
Following greetings from Cesare Azzali, chairman of Fondazione Collegio Europeo, and Gino Gandolfi, chairman of Fondazione Cariparma and full Professor of Economics at the University of Parma , the discussion started with reference to the analysis of 2016 banking financial statements prepared by Rinaldo Sassi, CEO at Scouting.
The numbers confirm that the European banking system is still under performing. From 2005 to date, the number of banks in Europe has fallen by 2,000 . In Italy, 3,546 branches closed between 2012 and 2016 (with the closure of another 2,700 branches necessary). ‘There are three key words’ explained Rinaldo Sassi, ‘capital, non-performing loans and profitability’, with profitability being a particular problem in Italy . Banks are unable to manage the risk, even though this is their job. And in the future, with digitalisation and the arrival of new lending platforms, they will not even be able to count on some of the commissions they receive today, due to competition from the new big tech. They will need to review their business model, making difficult choices in terms of specialisation and customer segmentation.
In his introduction, Roberto Ruozzi, professor emeritus at Bocconi University who moderated the conference, also focused on profitability , emphasising: everything depends on this and it must be recognised that the banking crisis is not a macroeconomic problem. Banks are in the middle for their most serious structural crisis ever, so the solution is not limited to merely slashing costs and the number of branches. There is a need to think about what to offer and how banks can exploit new technologies, as those unable to change will leave the market. This is not far off, as we are not speaking about ‘might’, but rather about things that are already happening today. Ruozzi concluded by presenting two case studies of companies that have been operating digitally for some time.
The first, Smartika, is specialised in peer-to-peer lending, with a platform authorised by the Bank of Italy that connects private lenders with private borrowers, without passing through traditional channels. The second, Advise Only, comprises financial advisors who help customers to invest in securities using mathematical rules, algorithms and software (Robo advisor). Serena Torielli, CEO of Advise Only, explained how technology and digital applications can truly enhance and improve human work, rather than replace it. ‘It is not about robots or advisors, but about algorithms that help to automate portfolio management: people remain fundamental in this process and the technology actually enhances their ability to better serve customers’.
When talking about P2P lending, Maurizio Sella, chairman of Smartika, stressed that the subject has not been fully grasped in Italy yet, even though these systems are already granting loans rapidly with a very low rate of insolvency.
A likely scenario in the near future was outlined by Emiliano Carchen, a manager at Oliver Wyman, who predicted that the ‘Big Tech’ firms (Google, Apple, Facebook, Amazon), which already offer payment services and have direct access to customers, will become the chief competitors of banks, which should avoid relegation to the role of back-office provider if they want to avoid a further major contraction.