This article is written by Austin Okere, Founder & Executive Vice Chairman, CWG Plc and Entrepreneur in Residence, Columbia Business School, New York. Austin Okere also sits on the GBSN Advisory Board.
Having enjoyed centuries of monopoly, assured by the support of regulation, including through stringent requirements to new licensees, the erstwhile secured future of traditional banks is facing a heightened threat of disruption from Financial Technology companies (or FINTECHs), who are exploiting pent-up customer dissatisfaction and new technologies such as block chain, coupled with the significant boost in smartphone adoption and pervasive broadband to disrupt the sector. The foundation of the Fintechs’ disruptive model lies in a peer-to-peer model for transactions, without any middleman or Central Authority in mind. A model that will possibly render the current establishment totally redundant and irrelevant.
The biggest threat to the banks has been precisely their seeming success. Centuries of relatively significant higher returns, even in the midst of economic downturns that adversely affect the real sectors, has engendered an attitude of invincibility and pomposity, characterized by a loss of touch with their customers.
Considered too big to fail, they take it for granted that they will be bailed out with taxpayers’ money in the event of any missteps – a perfect prey for disruption.
There are indeed five forces that will define the new face of banking:
- The banks – traditional and established, best with cash and ancillary instruments
- Fintechs – the new kid on the block, disrupter, mostly telecom roots, best with digital currencies and mobile services
- Regulators– Central Banks, regulating traditional banks; and Communication Commissions, responsible for telecoms regulation (and thus Fintechs)
- Currencies – traditional, such as cash and cheques; or Digital, such as bitcoin or other crypto currencies
- Customers – the weight and force of their new found voice. Typically, they clamor for whatever will give them convenience and lower costs.
These forces and their interplay are represented in the schematic below:
A schematic representation of Austin’s five forces analysis of the future of banking. Image by Omimi Okere
Customers are the most significant force, and represented by the outermost sector of the concentric circles. As they tend more towards a preference for digital currencies, the Fintechs will tend to assume a more prominent role in the new face of banking, and the Regulatory regime will inadvertently tend towards the Communication Commissions under whose purview the Fintechs fall. This will introduce a regulatory imbroglio, as future ‘Huge Banks’ may fall outside the regulatory ambit of Central Banks (as seems to be the case with the MPESA mobile money platform, through which 25million Kenyans transacted $28billion in 2015, representing about 44% of the country’s GDP. Safaricom, the telecoms promoter of MPESA ironically falls under the regulation of the Communications Authority of Kenya rather than the Kenyan Central Bank).
If the customers however, maintain a strong appetite for traditional instruments of financial transactions such as notes & coins, cheques etc. then the current status quo will remain. The face of banking will thus be more of the same, and the regulatory authority will continue to be Central Banks. Between these two positions may be many variants, depending on the appetite and preferences of customers, and the pace at which they are willing to embrace change.
The essence of the Austin Okere’s Five Forces model is to enable players equip themselves with the imperatives that will ensure that their business is continuously relevant in the sector. It helps to guide the formulation of your prediction based on the following considerations:
- Whether there will indeed be a disruption
- What the disrupted space will look like
- The scale of disruption
- The pace of disruption
A correct application of Austin’s five forces model will define the difference between whether you continue to be in business, or whether your business model will become irrelevant and redundant.
Even though I developed the Austin’s five forces model, primarily to analyze the direction of the future of banking, the model can also be used to analyze any industry which is susceptible to disruption from the pervasive block chain technology; including Real Estate; e.g. EY’s Australian operations piloted a real estate block chain ecosystem that is now being used in the market to trade full, and even fractional ownership of properties. And also Government; e.g. Ukraine has partnered with global technology company, the Bitfury Group to put a sweeping range of government data on a block chain platform. Dubai also has an ambitious block chain strategy to issue all government documents on block chain by 2020.
I will like to acknowledge due credits for this work to all block chain enthusiasts, whose previous works have provided valuable insights, and also to my dear Son, Omimi Okere, who is quite artistically inclined, and has been able to correctly interpret my model in an aesthetic schematic.