Although there have been a myriad of changes in the banking sector that have made banking processes faster, easier and more convenient, the basic concepts behind them remain largely unchanged. But what low-likelihood, high structural impact events (gray swans) could trigger a dramatic shock to the banking sector? Here are 5 interesting ones:
- A BigTech player – a BigTech company launches a highly-scalable banking offering, individualized for millions of customers across all major banking segments and with a cost base dramatically lower than the industry average. Customers quickly adopt the platform as their starting point for all bank-service searches and stop going to financial institutions to shop around for those services.
- An extreme geopolitical event – protectionism and isolationism take hold and major economies become increasingly less connected. Global trade slows, as do financial flows. In some emerging markets, financial institutions are nationalized. As a result, global supply chains are broken, the global payments infrastructure is severely disrupted, funding costs move sharply higher and defaults begin to rise.
- An apocalyptic cyberattack – one morning all customers at a large global financial institution awaken to find their bank accounts emptied. Panic ensues, infecting other financial institutions as people worry where the next cyberattack will hit, bringing the whole payments system of a major economy to a standstill. Illiquidity then paralyzes the market. Deposit insurance schemes are overwhelmed and trust in financial institutions is destroyed.
- A demand for socially-conscious financial institutions – a small but vocal group of customers and shareholders in a developed country push financial institutions to act more socially and environmentally responsible. This message gets reinforced by media and becomes a major issue. Financial institutions are forced (explicitly or implicitly) by customer and investor expectations and social media pressure to change their purpose, reporting, products and economic model. Financial institutions that respond first to these demands gain an advantage as others struggle to follow suit.
- New regulations – open banking hits a tipping point, giving all financial institutions access to each other’s customer information. As financial institutions lose their grip on their client base, competition for customers (both from traditional and new sources) skyrockets and churn rises dramatically. Many incumbent financial institutions are stuck with expensive branch networks in the least lucrative segments of the market.