tried to open a bank account in Brazil. “It was like going to prison,” he says. He was ordered to leave his belongings in a locker before walking through bulletproof doors. After waiting an hour, he faced a barrage of questions from a hostile manager. It took five months for him to be offered a bare-bones account costing him hundreds of dollars a year and a credit card charging an annualised interest rate of 400%.
Some firms will cash in on the digital rush, while others will be left behind. Capital markets think a new era is dawning: conventional banks now account for only 72% of the total market value of the global banking and payments industry, down from 81% at the start of the year and 96% a decade ago . Fintech firms such as Ant Group and PayPal make up 11%: their market value has almost doubled this year to nearly $900bn.
Shops have reopened, but people are sticking to plastic. Governments in 31 countries have helped by raising limits on contactless payments . Those at Visa and Mastercard, two card networks that account for 94% of transactions processed outside of China, surged by over 40% in the first quarter of 2020, compared with the same period in 2019.
These changes in behaviour seem likely to stick. Many customers were unfamiliar with the technology before the pandemic—and surveys suggest they like it. In April nearly a fifth of American adults used digital payments for the first time, reckons Forrester, a research firm. Since February Nubank has gained 30,000 users over the age of 60 every month. In a global survey Bain, a consultancy, found that 95% of consumers plan to use digital banking post-pandemic.
Much of the gains could come from the ability to merge and exploit data long siloed within different financial services. Armed with a full picture of users’ behaviour, firms hope to use algorithms that spit out tips on, say, how to save for a dream house. That will make the platforms even stickier and allow them, in turn, to recommend yet more products. Backbase, a fintech that designs digital-banking software for incumbents, is also working on such wizardry.
Bring these initial conditions together, and you start to see why certain financial systems are where they are today, and where they might end up. America is at stage zero. Customers are locked into sticky credit-card schemes funded by extortionate levies on merchants. Tech firms must rely on creaky financial plumbing run by well-protected incumbent banks.
Not so much? How many branches had to close due to digital banking? How about digital currencies potential (bitcoin, ethereum..etc), replacing actual existing currencies in the future? Digitisation made old style retail banking obsolete and the whole sector had to transform.
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Alternatively speaking conventional money not changing hands as before.
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