Wednesday, May 13, 2015

Group of 30 - Digital Banking and the Future

From time to time I run across articles or papers that talk about where things may be headed in the future. It's obvious that the banking system is becoming more and more digital in nature all the time. I found this work paper on the Group of Thirty web site titled "The Digital Revolution in Banking". Since I do think this will be part of the change we will see in coming years, below are some quotes from this interesting work paper. Here is some info on the Group of Thirty and its members



"The Financial Services industry has always sought to be at the forefront of technological innovation. Success has depended on it. The sector led the early commercial adoption of mainframes in the 1960s, the rollout of large-scale credit card and ATM networks in the 1970s, electronic trading in the 1980s, and the early move into online banking in the 1990s. 

The financial services sector is now confronted by a new challenge, as a range of very different digital technologies—mobile devices, social media, cloud computing, data analytics, and process digitization—all mature together. Combined, they have the power to transform markets for customers and to disrupt established players

The impact of digital technologies on financial services will be large and pervasive. The result is likely to be a very different financial services landscape. Traditional players will fundamentally reconfigure their operations. Complex collaborations among players in financial services and other sectors will be established. New entrants, some with very different business models, will emerge.

 This shifting landscape will hold new challenges for policy makers, in a period when both renewed economic growth and financial stability are needed. New sources of competition, increased innovation, and greater productivity are essential ingredients for economic growth, especially in mature economies. At the same time, policy makers will need to ensure that what is likely to be a very different environment remains safe, robust, and orderly, and operates in a way that both facilitates economic growth and protects the community.

Further, if a sound and stable financial system is to be maintained in the face of a rapidly changing environment, policy cannot afford to lag too far behind commercial reality. Early identification and consideration of the issues that matter may make an important difference. This paper outlines the march of digital technologies into financial services and describes the emerging policy questions. It argues that these issues are worth further consideration and suggests a path forward for their elaboration and discussion."

. . . . . . 


"Assessing the risks of a digitizing financial services environment and responding to them is a challenge for policy makers and thought leaders, as much as it is for the executive teams of commercial banks. 

The challenge will be making sure they are staying up with the play, have the capabilities to understand the new environment, and are not letting new risks emerge unobserved

There can be little doubt that digital technologies are rapidly changing financial services. In the next few years, traditional banks will transform. New entrants will appear, some playing a potentially major role in financial services, particularly in payments and related services

Traditional boundaries will shift, and there is the potential for financial service activities to spread well beyond traditional providers and be undertaken by complex webs of entities. 

Understanding industry boundaries in a digital world, ensuring that community confidence and trust are maintained, thinking through the consequences of digital currency, and recalculating the profile of systemic risk are all likely to prove weighty issues

While much is in flux and some issues are now emerging, it is prudent to start discussion early, rather than trying to catch up later. It may also be wise to set some early boundaries, even if they are relaxed later. 

Given the extraordinary disruption caused by the global financial crisis, it is not surprising that matters of capital, liquidity, resolution, and recovery have dominated debate for the last few years. It may now be timely to direct more consideration to the next large wave of change about to break across the sector

This paper is intended to stimulate a discussion about the systemic consequences of the digital revolution for financial services. While there has been much debate about the commercial and social consequences of the digital revolution, the policy debate has received much less public attention. At a time when both economic growth and the stability of the financial system are essential concerns, finding the right balance between encouraging new growth and not allowing it to proceed in a totally unfettered manner is an important and major task for policy makers and policy."

Click here to read all the full work paper

My added comments:

This a theme I see  mentioned quite often within the present banking system. New innovative technology is a desirable thing. The question is how will it be regulated and how might it impact the stability of the overall financial system

I think that we will see some kind of global payments system that allows for real time currency exchange emerge over time that will be acceptable to the present banking system. Eventually, it could include a store of value asset backed type of digital currency as well.

We can expect the ongoing move towards a more cashless society to be met with suspicion by those who view restrictions on the use of cash as attacks on personal freedom and property rights. Advocates of a more cashless system will cite the need to prevent illegal activity and to protect the public from potentially unscrupulous money service business operators. We will follow it here to see what happens. 

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