Conversations #2 The twilight of banks
Where institutional financial services will fight their inveitable demise
The idea of this newsletter is to simply share discoveries of the week and delve deeper into the financial revolution that we’re witnessing. Yes, it’s going to be about crypto, but not limited by it. If you disagree with anything, feel free to mail back, I’ll publish it.
Under the hood : Ave DeFi, morituri te salutant
I stopped believing in traditional banking when I discovered an alternative : decentralised finance. However, claiming banks will disappear is simply untrue. To explain this, I will focus on depository banks which are basically financial services aggregators whose main job is mitigating risk.
These centuries old structures are now starting to lose their shine. Fintechs showed their weaknesses this decade with some memorable moments like Wirecard (yes, I know, in retrospect, LOL) pushing Commerzbank out of the DAX 30.
But the true decline of banks doesn’t come from competition but from a total trashing of their brands. The 2010s left banks in shambles in the wake of the subprime crisis. This happened to such extent that European banks never recovered the trust of the market and are now at a 50 years low.
The scandals didn’t only affect the branding of banks. In 2009, most were literally on their knees begging for a bail-out, which they got, in exchange of very forgiving conditions.N̶o̶w̶ ̶b̶a̶n̶k̶s̶ ̶a̶r̶e̶ ̶b̶a̶c̶k̶ ̶t̶o̶ ̶t̶h̶e̶i̶r̶ ̶f̶o̶r̶m̶e̶r̶ ̶g̶l̶o̶r̶y̶ NOPE
Compliance has become very complex and expensive, often reaching almost 10% of a bank’s annual expenses, and foreseen regulations will expand the already important compliance budget of banks.
Coupled with the low interest rates pushed by central banks, margins are melting like snow, and for once, it’s not because of global warming.
I believe the last push is CoVid (banks were asked to participate in the salvation of the economy by loaning enormous amounts). It created a huge treasury void for banks from which they will take years to recover from.
You’ll notice that all of these problems don’t include the growing competition created by Fintechs and DeFi, who are seeing explosive growth.
To be honest it doesn’t matter if traditional banking is panting. Twilights can be sunrises as much as sunsets. Financial services aren’t going away, however it seems we are witnessing the birth of more neutral (probably autonomous) banks. Traditional banking and their tired and inefficient models will slowly fade, and new aggregators will rise.
The real issue is whether or not they will offer better risk management conditions.
Next week I’ll probably talk about the incoherence of the current financial regulation.
Worth your attention:
⚽The SuperLeague didn’t work, in the end, money won over money [$]
⚡ Traditional media love showing crypto as a energy drain, this is an exaggeration (and only true for Proof Of Work blockchains)
🚗 Self driving car ? The best primer to understand when you’ll have to stop driving
📈 Tiger Global beats traditional VCs by being faster and richer… Why does this seem so wrong ?
Because I can’t always have the last word :
You don’t remember the name of people you meet ? Here are some tips to solve this