I’m coming at you with two big financial services predictions today:
Chuck Norris will start a SPAC. (2020 is a record year for SPACs, and if Shaquille O’Neal and Billy Beane can do it, my money is also on Chuck!)
The physical aspects of the finance industry are fading fast.
As much as I’m tempted to wax at length on the Chuck Norris SPAC (you heard it here first), I’ll instead focus on prediction #2:
THE PANDEMIC HAS SHATTERED THE DIVIDE BETWEEN THE PHYSICAL AND DIGITAL, ACCELERATING THE FULL MIGRATION TO DIGITAL BY AROUND 15 YEARS.
No industry is immune to this year’s upheaval, but the cracks in the finance industry are particularly vulnerable for two reasons:
The economy is in a dramatic state of flux
Finance is heavily over-reliant on constants
The financial services industry has long taken many constants for granted — perceived pillars of the industry they assumed would always be there. The physicality of money and how we access it is at the core of these false constants.
2020 is like a fracking pump, injecting enormous amounts of pressure into these already precarious financial structures. They may not publicly admit it yet, but the industry is about to explode.
I’ve already written about some of these inevitable changes and why I think a tech executive (not a finance exec) will be the one to relieve some of that pressure. But leadership is just half the battle. The existing financial models aren’t working for most people, and there is a major reckoning coming.
I predict a comprehensive move from physical to digital will be one of the biggest and most lasting financial shifts we see as a result of this year.
Financial institutions have (finally) realized the viability and value of shifting many aspects of their core business to the digital realm.
HERE ARE SOME AREAS IN WHICH I ANTICIPATE SIGNIFICANT CHANGE:
Banking branches: The inability to see people in person has accelerated the inevitable demise of physical bank locations by years. Those traditional banks have always said, “But there’s an elderly woman in Des Moines who needs her money!” as a justification for local branches. Only now, that same customer is forced to use mobile checking — and possibly even go full Millennial by opening a Venmo account. So if that hold-out demographic is making the shift, and phones are the new “local” branches, the banks are left wondering why they’re still investing in expensive physical real estate. They knew this would happen — someday — but someday just got a whole lot sooner.
Financial advisors: Back in the olden days of 2019, people still valued a financial advisor down the street from them. You could shake their hand, see what kind of car they drive, and maybe even get lunch together. Fast forward several months (!), and that image feels quaint and antiquated. Literally overnight, there is now widespread agreement around the acceptance of remote consultations with advisors. Sure, being physically in the same place might be nice, but moving to virtual is not only safer and more convenient, but also widens and diversifies your options beyond personnel in your geographic locale.
Cash, Credit Cards, and ATMs: The physicality of money was the catalyst for banks at the beginning. Hoarding all your gold at home just wasn’t practical, so banks served a useful purpose. But if the gold (or cash money) becomes obsolete, then what? ATMs will likely become as scarce as pay phones. Even credit cards will become an anachronism. Digital payments using your phone require less fuss and fewer tangibles to deal with — plus, vendors are incentivized to favor digital: handing over a wad of cash is psychologically far more painful than a neat and tidy digital transfer, further loosening the pursestrings. As a result of this shift to digital payments, I also anticipate cryptocurrencies becoming more widely accepted and taken more seriously.
Robbing a bank: RIP the days of bank heists and storming an armored car, hello ransomware! We’re only beginning to understand and safeguard against digital criminal activity…and Hollywood storylines are forever changed.
What might have taken decades to transition due our deep psychological and emotional ties to physical money and financial management is now a current reality. Breaking those mental personal constants felt insurmountable — until the pandemic. Just like the only thing that could save the delivery service industry was moving all restaurant orders to take out, the only thing that could really accelerate the financial industry’s shift from physical to digital was shutting down the physical world. And that’s what we got.
Are you ready for or reticent about shifting your money from physical to digital? What other waterfall effects will this usher into financial services?
Until next time,
Ben