This is the first article of a series on the future of banking by Genping Liu, Partner at Vertex Ventures Southeast Asia and India fund.

As an early-stage investor, Vertex Ventures SE Asia & India, we invested nearly one-third of our fund into finance technology companies (FinTechs). For me, my foray into the sector began six years ago in 2015. Yet, in this relatively short time, I have already had the privilege of witnessing a few significant technological transitions from ideas to reality in FinTech.

I often theorize on what the future would hold for banking. Hence, I will be discussing my thoughts via a three-part series on the Future of Banking. I’ll be first discussing the changing concept of money and financialization of everything.

The exciting evolution of FinTech continues

In my perspective, the words FinTech revolution actually understate the pace of development of fintech these days. In fact, I noticed many of the concepts theorized in the last five years being implemented at lightning speed and gaining huge attention overnight. Here’s what I see has happened over the past half a decade:

  • It began with the consumerization of traditional banking service, followed by the unbundling and then rebundling of different bank offerings.
  • Open banking and embedded finance came quickly after, as Artificial Intelligence (AI) and Distributed Ledger Technology became increasingly sophisticated and more widely adopted.
  • We are also now seeing Neo-banks sprouting up rapidly across the world, with regulators issuing or are about to issue digital banking licenses to them.

The wave of financial innovations first began in the US and Europe before spreading to Asia, except for China, where the technological innovations diverged into a different path.

Specifically to Southeast Asia, we are experiencing strong tailwinds right now: close to all mega tech companies have a fintech thesis while many startups employ fintech as a monetization strategy. With strong regulatory support, along with a rapid rate of innovations, it does seem like we are indeed living in exciting times within fintech!

Amidst the excitement, yawn…

Yet, I can’t help but feel bored over how things are progressing–in a much predictable fashion these days (sorry if I do offend anyone!). Yet, it seems that the future of banking revolves around these few things:

  1. A matter of digitalization through the rise of neo and digital banks,
  2. Or, it would be about banking the unbanked and designing new services to serve them,
  3. Or, banking everywhere with embedded fintech and banking smart with AI.

These things will undeniably change the banking sector landscape in the next five years to come, but I personally think these are more like gradual ripples of change. It might sound audacious (but perhaps you would agree with me), I reckon these transitions wouldn’t be enough to disrupt the megabanks yet.

I can’t help but ponder, what will happen beyond all this fanfare in FinTech?

Being someone constantly on the lookout for the next big disruptive act, I truly wonder what will happen beyond all these gradual changes.  My curiosity led me to start exploring a few key trends and guessing what are some of the most plausible possibilities for the future of banking.

A disclaimer though! I have never been a banker so I won’t say I would ever fully understand the intricacies of the banking system. Nevertheless, disruption often comes from the outside rather than within, so let me take great liberty in taking a stab at what might truly be the next big disruptors to banking.

I will be unpacking my thoughts in this three-part series on the Future of Banking. Your comments are highly welcomed! Follow me to be updated on the release of my next post.

Part 1: Money re-defined in a financialized world

Please bear with me, before diving into the future trends and innovations in banking, I see a need to first challenge and even redefine several age-old concepts such as money and currency.

What is money?

First of all, what is ‘money?’ The older generation would see money as a piece of paper that they can physically hold. Others may see it as a number on their account books that they struggle to trust, out of fear that banking’s Information Technology (IT) system may fail. To most of us reading this post, we are likely to think of it in purely digital terms–just a number somewhere in the data center.

What is currency?

Next, we need to discuss the concept of currency. We are typically most concerned about our local currencies, whereas the more sophisticated amongst us may think more in terms of the US currency (USD), especially if they dabble in various exchanges. Yet to my young kids, ROBUX is the most tangible currency, even much so than SGD. Or for Non-Fungible Token (NFT) lovers, the ether coin (ETH) is more real to them than paper money. These days, besides the real-world government-backed fiat currencies, we also see the rise of the gaming world of corporate-initiated currencies and the crypto world of communicated support currencies.  And they all seem real.

The way we earn ‘money’ has changed dramatically

A subsequent question to ask is how do we make money these days? A decade ago, we used to stay in a single country/ market and earn the local currency. These days, people are free to work online to earn “international currencies” anytime.

In the past, we all wanted money, the kind that fills up our bank account, but now we have begun to be paid by something else that is as valuable and nonetheless, as liquid.

Is money/cash still the only liquid asset today?

Fourth, we often think of money/cash as a liquid asset that we can use as a medium of transaction and view other assets (properties with economic value) as less liquid assets. But, in today’s tech world, it seems that every asset is just one API (Application Programming Interface) away from being used as a liquid medium of transaction.

For instance:

  • When we shop at foreign sites, our local currency is being converted to other currencies without us even noticing it–the seamless wonders of technology.
  • Robo Advisory/ Wealth Tech startups now enable you to spend highly liquid Exchange Traded Funds (ETF) or other assets with little friction–a giant leap from how things used to work, say in our parents’ generation.
  • Then there are those crypto-linked cards that enable you to spend your BTC or any digital asset.
  • Otherwise, just consider how so many liquidity tools are now being built around real estate, art collectibles, NFTs, enabling everything to be a medium of transaction.

Ray Dalio recently cautioned, “cash is trash” and that you are better off holding onto investment assets. If so, is there even a point to holding cash anymore?

Everything is increasingly financialized

Economists would simply argue that “money is a commodity accepted by general consent as a medium of economic exchange.” However, there is a shift in what the general public consents to–money-as-we-know-it is already changing. And, with all these redefinitions, a bigger trend looms in the background: that everything is increasingly financialized. I grew up knowing only fiat as money, and now I see most forms of assets being as valuable and liquid as fiat cash. My kids will probably grow up associating less with fiat cash and more with ROBUX, along with all other assets. Alternative assets are going mainstream and this expands the asset space dramatically. All types of assets will be increasingly digitized, fractionalized, and tokenized–along with the liquidity built around it.

Source

Fintechs seem to satisfy my needs better than the banks

Banks were going after the traditional money as before, but increasingly going after your other assets and other parts of your family finances as well. Yet, are they serving the end customers like you and me well enough? Personally, I have only taken up basic deposits and some payment products. Why would I take up more? The fintech startups such as Validus, NIUM, Pace, Binance, Coinomo, etc are already offering far superior and more innovative products and experiences.

Our financial needs and habits have evolved a lot

I believe banks are really good at optimizing what they are doing now, but they will always be playing the catch-up game on the more disruptive fronts. But don’t get me wrong, banks are still relevant, as they are highly regulated and trusted, but their role in the whole scheme of things is evolving.

I’m not sure about you but as our lives have become increasingly complicated and integrated, I prefer solutions that could take care of everything finance-related for us. We all want our money to work harder for us, and the younger generations will get increasingly comfortable being exposed to many new classes of “money”.

In the past, there was a clear distinction between banks which manage your deposit while providing a range of use cases, and wealth management companies that focus on growing your wealth by managing your assets. Now, with the likes of Robinhood, Coinbase, Crypto.com, and many others, the line has blurred. You can now gain daily interest on your Bitcoin or stable coins and spend it instantly on a new jacket using the Coinbase card.

Knowing this, would you or the younger generation still prefer to keep money in their low-interest-bearing bank account? What does the future hold for banking? Would the competition be about attracting more of the end consumers’ local currency-denominated deposits, or their money and assets including equity or fixed income, crypto, or even NFT?

I shall leave you with this question and stop here on Part 1 of the 3-part series on the Future of Banking. Your comments are greatly appreciated!

In part 2 of this Future of Banking series, I will be discussing an Open and Programmable Money Infrastructure. Follow me to be updated on the release of my next post.

Genping Liu is a partner with Vertex Ventures Southeast Asia and India fund.

Vertex Ventures Southeast Asia and India is part of the Vertex global network of venture capital funds. Its global network also comprises affiliates in Silicon Valley, China, and Israel. A trusted partner to some of the world’s most innovative entrepreneurs, Vertex supports its portfolio companies with unmatched operating experience and deep access to the capital, talent, partners, and customers they need to build truly global businesses.

This article was first published on Linkedin. TechNode Global publishes contributions relevant to entrepreneurship and innovation. You may submit your own original or published contributions subject to editorial discretion.

The future of banking: An open and programmable money infrastructure (part 2 of 3)

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