The rapid pace of purposeful innovation and insights-driven digitalization efforts is fueled by the accelerating needs of modern banks and credit unions which are competing to better meet the growing expectations of their customers and small business clients.
While today’s powerful, emerging AI technologies are capable of collecting, processing, and analyzing a wide range of banking data, how will the next generation of technological advancements support (and shape) a financial industry that requires agile tools to power its work?
Listen in as Baker Hill’s lending experts share their thoughts and discuss what they think banking look like in 50 years.
Yes. Last year the number of bank branch closures reached an all-time high. In fact, according to S&P Global Market Intelligence, 2021’s total closures grew by 38% from 2020.
Contrary to popular belief, IoT doesn’t immediately mean futuristic. In fact, one of the first and most widely-used fintech-related “Internet of Things” or IoT solutions—cash machines or ATMs—have been around since the 1970s. These devices connect to the web to increase banking efficiency and help consumers make real-time transactions.
Ashley Garrison: Hello, and welcome to Baker Hill’s Lending Made Easy.
Today we’re going to have a lot of fun talking about the future. What will banking look like in 50 years?
If you think about 50 years ago, in 1972, the world was a lot different before Amazon took over the world and before Elon Musk started to talk about taking over Twitter.
Let’s talk, where do we see it in 50 years? I think I’m going to throw this to David our wizard of all things lending software to get us started.
So, David, in 50 years, what is banking going to look like?
David Catalano: Technically, I can’t be wrong on this, right? Future banking technology is an interesting topic. In 50 years, we’ll have a confluence of technologies that will just facilitate an ease with which we can all exist.
Our cost of living is going to go dramatically down. There’ll be far fewer people in the workforce. There may not be a need for a branch. Blockchain will take over with respect to a common ledger for all assets. Ownership of assets will be crystal clear.
Consider auto lending as an example. Think about the auto lending in credit unions. That’s all going to go away because we’re going to have transportation as a service where a driverless vehicle will show up and bring you to your next destination, and it’ll be so inexpensive that you would never want to own a car, right? Car financing will be gone.
Also, the basic economic needs of everyday people are going to change dramatically. There’ll be a large portion of the population that’ll be on some type of economic stipend on a monthly basis because there just won’t be jobs for them.
All jobs will be tied to very critical functions.
There’ll be a proliferation of robotics both in the home and in the business. Everything is going to change dramatically. That’s 50 years from now. It’s been a long time.
Bryan Peckinpaugh: That is a long time.
Although, a lot of what you’re describing, the Jetsons predicted we’d have already. And, we’re not there yet, but I hear you.
Who knows, but you’re right. We can’t be wrong. That’s the beauty of these conversations about future banking technology. We can just think outside the box a little bit.
One thing I really hope is gone is checks. We’ve been trying to kill those for 50 years and haven’t succeeded there. But, we have a really good shot in the next 50 years to change some of the basic, just methods of exchanging money amongst ourselves. The payments technologies obviously will continue to increase in their speed and peripheral proliferation.
There we go. That’s a big word for a Friday in the middle of the day, but that’s what I think about some various types of future banking technology—like the blockchain—and how they are (and will) impact different cryptocurrency-type ideas, real-time money movement, the expectations around what I want to be able to do with my money, no matter where it is.
All of this is going to be wildly different than what we see today and how that’s exchanged beyond just an app to an app that we have in today’s environment. I would suspect that maybe—after another revolution that hasn’t started yet—something that we could see taking off is the augmented reality concept.
I’m not willing to go quite so far as virtual reality. I don’t know that we’re going to be banking in the metaverse necessarily. But things that augment my experience and tie to some financial elements of it? I could see something like that taking off.
What that looks like, what the devices are that support it, Lord knows. But that augmented reality and other types of future banking technology could play a big part in what comes next in our lives.
As you said, David, in regards to getting rid of a banking branch, the question is how do I supplement that with technology and still have access to the financial experience?
David Catalano: Cash goes because cash is just one currency, right?
We have all of these currencies coming around these cryptocurrencies. So, if any of them have legs, what would I carry in my pocket?
The only thing I could carry is cash, and that may be the less desirable way to transact depending on who you’re transacting with. And, if you’re transacting in a digital environment, cash doesn’t work.
So, the only time you’d be transacting with cash is on a face-to-face basis—I guess—unless you’re wiring money. But, for the most part, you would probably just move money, from one account to the next easily without the help of a bank.
It’s an interesting environment to contemplate.
Ashley Garrison: When thinking about future banking technology, what type of people are going to exist within the banking credit union structure? Will there be a need for a teller, as an example, or do we see some of that shifting to more automation and different new roles popping up?
Bryan Peckinpaugh: The more you move into the space, right?
As David said, you get rid of cash. You get rid of checks and some of the work that the tellers do shifts. We could see an entirely different set of roles and responsibilities inside a financial institution.
There’s been a lot of talk about the world of robo-advisors for wealth that hasn’t really taken off or replaced the in-branch financial advisor.
I don’t know that that’s going to happen in 50 years. That seems a bit of a stretch to me unless you see a big shift outside of the banks for the wealth management needs of some of the younger generations.
Some of the real legacy concepts, like safety deposit boxes. I don’t know what becomes of them with the rise of future banking technology.
I still have one, but I don’t know about you, David. I’m not entirely sure I have anything in it, so I don’t know why I have it anymore. But you know, what role does that play in the future of a secure place to keep things? Because that was part of the value of the bank branches knowing it was a secure facility to keep valuable goods.
It is ripe for big change because it’s been the same way for a long time.
We’ve nibbled at the edges with online banking and ATMs—supplementing that with digital overlays to the ATMs and trying to provide more banking expertise and services.
Are we able to really make that shift in 50 years? Remains to be seen, I guess, but I don’t know that they go away in their entirety.
David Catalano: Yeah. The FDIC-insured deposit is a need. I don’t see that going away. If there’s going to be a need for that safety, a bank is a place for that and the bank to make money on that.
They’re going to need to lend money, right? They’re going to still have the low-cost edge in the lending space, and we’ll continue to lend money to commercially-focused enterprises that I would think that construct would not change.
Bryan Peckinpaugh: That’s one thing I’d love to see.
Kind of shifting a little bit away from what does future banking technology and banking look like in 50 years, I wonder what Brian wishes banks and credit unions would do?
One thing the market needs is a good ID verification service. So something that can be tapped into to prove that I am who I say I am, or my business is a real business that I can transact on behalf of that business. There’s a real opportunity in the financial sector to play that role across many different channels.
We see Google and Facebook and others act as that online digital identity. You can sign into certain websites with your Google ID, right? Instead of setting up a username and password—which is all well and good—but my bank knows so much more about me than Google does.
Even though they’ve got a lot of my search history at Google and different information, the bank knows who I am. They know my creditworthiness. They know what I can and can’t support from a financial perspective.
There’s an interesting opportunity at some point in the future if banks band together and the right future banking technology spins up and is supported by other solutions.
The financial impact of having a singular ID could be something really interesting and solve a need in the market.
Ashley Garrison: Thinking just in terms of the fintechs that are coming up now, a lot of them have a focus on equity inclusion.
Do we see anything changing with credit scores? How credit worthiness is determined? Will there be a movement if you will, to change that up because of social pressures? Just curious. Do we see that changing in the next 50 years?
David Catalano: When I think about a FICO score or the algorithms that the FICO folks have put together to calculate whether someone can pay as agreed or not, it’s all predicated on the data they have and the responses they receive from those portfolios of those loans.
We need another recession to see if alternative models actually work. You’ve probably all heard of different ways which would in which you can determine if somebody’s going to pay as agreed, but during a good economy, they’re not tested.
What we need to do is see how fair they are and then maybe that points us in a different direction. What I see as an industry reluctant to make changes because the models have historically worked really well.
I don’t know that I’m not talking about inclusion or exclusion. I’m just looking at credit models and what works and what doesn’t. I’m probably not really addressing the question.
Bryan Peckinpaugh: No, but I think it does a little bit though, David.
There are some really interesting companies sprouting up that are built around those concepts of inclusion that you were talking about.
I’ve talked to a few of them. One of the questions that still remains for me—as we think about future banking technology solutions—is what we can do to serve the underbanked and the non-banked.
Their whole financial world is transactional, and it’s outside of the system. It’s cash. It’s sometimes bartering. Who knows what’s happening that proves their creditworthiness to David’s point, that we don’t have the models. We’ve not tested the models.
The challenge will be how to centralize all of that information. How do I get at the transactions that aren’t happening today in a system or that are happening in money transfers?
What happens if I send a MoneyGram back home if I’ve immigrated here from Mexico, for example? Then, what happens if I send money back via one of the wire transfer type solutions back home?
How do I bring that together into a view of financial health? Continuing to get to a more open banking ecosystem, something where those styles of transactions are available to everybody to run models against whether or not they are tested, at least we’d be getting them there so we can start looking at them and determining what does a good cash flow based digital lending program look like, especially knowing that today I don’t have access to the entirety of your cash flow.
Ashley Garrison: Final question: we looked forward a lot in today’s podcast. But looking back since 1972, what do you think has been the biggest banking transformation driven by future banking technology that’s occurred over the last 50 years?
David Catalano: Right now we’re in the golden age of commercial loan origination solutions. It’s the origination, underwriting, documenting, and funding of commercial lending in a single digital loan origination system that has been the most transformative I can think of.
I mean, if just the efficiency gain on the employee side is just in is crazy. It’s never going to be beaten. You know, it’s the best time to be here right now.
Bryan Peckinpaugh: Absolutely. We suffer from recency bias, where we’re probably going to default to some of the things that are happening right now.
I might vote for something, like the Check 21 act, which was the first step towards this world of digital payments not requiring the paper version of the check and how that has then led to the world of P2P payments and cryptocurrency and other things where, if we didn’t take some of those initial first steps, I don’t know that some of these things exist.
I’m sure there’s something back in the 1970s or 1980s that I’m not thinking about.
I’ve gotta imagine the biggest future banking technology transformation to date was somewhere in that ballpark. Although we’re making even larger strides today and changing at a more rapid pace. I’ll go with the Check 21 Act for today.
Ashley Garrison: Sounds awesome. Thanks again for streaming the latest episode of Lending Made Easy. And, you heard it here first: let’s listen to this podcast again in 50 years and see if anything that David or Brian predicted comes true.