Almost all the innovations that are forcing companies to reinvent themselves stem from the language developed by humans to control machines. Software is the new world language. The five companies with the highest stock market value are built on software, the language of hackers. A language whose rules are fluid and constantly changing, and which has become a source of wealth creation and a threat to traditional industries such as banking. The main danger for these old businesses is that software can attack the whole of their value chain with very low-cost investments, and replicate the model all over the planet. For these new masters of the universe, Internet has placed the global economy within reach of a single click.
The software industry has burrowed into the very heart of the banks’ businesses and shaken the foundations of companies that had previously looked impervious. The language of machines has put paid to the banks’ intermediation in the chain of services associated to money. Paypal, eBay or Alibaba, Facebook, Apple, M-Pesa, Equity, Quirky or Kickstarter are now the new banking intermediaries.
Alibaba, the largest online market wholesaler in the world, expects to make loans of up to 800,000 euros to SMEs and deposits to small savers. In January, Tencent, its main competitor, launched WeBank, China’s first online bank. The social network Facebook, which already enables registered friends to send money to each other, has also applied for a banking license. Amazon offers consumer loans, iTunes has more credit cards registered all over the world than many big banks. Google lends money and is also keen to transform itself into a bank.
New customers: new challenges
The latest World Retail Report from Capgemini underlines that the gap between the customers’ expectations in terms of the use of new technologies and the performance delivered by the banks is widening. Young people want to interact with their banks in the same way they do with Amazon, Apple, Twitter or Facebook. For the new generations, the symbolic value of security which their parents saw in the banks has now vanished. In their minds, money is no longer only in the domain of banks.
Paradoxically, the bands operating in less developed countries are the ones that are adapting best and fastest to the needs of these new customers. Safaricom, today Kenya’s number one bank, was previously a telecommunications company. Thanks to M-Pesa, the mobile platform developed by Vodafone in 2007 to allow women receiving microcredits to collect and repay their loans, over 19 million Kenyans today use their platform for their collection and payment transactions. According to a report by the World Bank, 60% of Kenya’s GDP is transmitted via M-Pesa. Figures from the GSMA indicate that in March last year over 1.6 billion mobile transactions were made in Kenya, most of them through M-Pesa. About the success of this platform, Keith Hart, the anthropologist and creator of the concept of the informal economy, has underlined that the banks have understood that there is more money to be made from people who have no money than from those who do.
In its annual letter for 2015, the Bill and Melinda Gates Foundation highlighted that by 2030, over 2 billion people who today do not have a bank account will be able to make all kinds of financial transactions via their mobile terminals. In Latin America, forecasts indicate that by the end of the year the number of people who access their bank via their cellphone will exceed 140 million. In Spain, which has the highest rate of smartphones of any EU country, the number of people who access their bank from their cellphones has multiplied fourfold.
At the end of last year, India’s Kotak Mahindra Bank launched a savings account that can be opened and managed from customers’ Twitter and Facebook accounts. Another bank in India, ICICI, allows people to make transfers from their cellphone via Twitter.
The European Union’s Innovation Observatory has warned that the market for P2P loans (person to person) is set to become a parallel economy operating alongside conventional banks. The British platform Social Finance has carved out a substantial niche in the area of student loans, and now has $1.3 billion in refinanced loans.
According to the World Bank, funds raised through crowdfunding grew by over 1,000% between 2009 and 2014. The forecasts for 2025 point to figures of up to 96 billion dollars. Forbes also adds that in the United States alone there are 80 million millennials (the generation born between 1982 and 2000) who have a purchasing power of over 200,000 million dollars. In the United States, non-banking savings in 2014 stood at around 350%.
The knowledge society forecast in 1968 by Peter Drucker, the Austrian treatise writer and lawyer, in his book “The age of discontinuity”, has triggered more changes in the industry in the last ten years than in a whole century. The visionary Drucker presaged back in the day that the primary resource for producing wealth in our time was knowledge. 90% of the accumulated data in the world has been generated in the last two years, and the volume of knowledge doubles every 18 months. In 1994, Drucker wrote that the information and communication technologies have radically transformed economies, markets, the structure of industry, products, services and the labor market. When Drucker said this, Web 2.0 was still in its infancy, and the social networks Facebook and Twitter were awaiting their turn in the corridors of Harvard. The age of discontinuity predicted by Drucker is written with software letters hacked from bits in the clouds.
Journalist at the R&D&I department of Canal de Isabel II
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