What Will the Banking System Look Like in 10 Years?

What will happen to the banking system in 10 years?

I have always asked myself this question. To understand how the world is changing, we need to remember what things looked like 15 years ago.

The world is changing, and banks are not standing still either. Just 15 years ago, we did not know what mobile banking was. All payments went through bank tellers, and mobile phone bills were paid with prepaid cards. To send money to someone, you had to either use a bank teller or physically send an envelope. Getting a retail loan took several weeks, and a bank card was an unaffordable luxury for most people. Salaries were paid out at the cash desk, and there was even a specially equipped room for it.

Everything is changing now, but unfortunately for us, we still lack what developed countries have had for many, many years. And here we depend not so much on technology as such as on the development of the country itself.

A bank essentially has three functions: transfers and payments, retail lending, and lending to legal entities.

Consider business lending. In developed countries, a good, large company will turn to a bank for money only as a last resort. All major projects are financed through the stock exchange, and banks, which hold the vast liquidity of companies and households, also invest most of their funds through the exchange. This is much cheaper, because it does not require so many bank analysts and a whole staff of relationship managers. Instead of banks, equity analysts and the market do this work, while the information is provided by auditors and checked by the exchange. What makes an exchange unique is that you do not need long-term money to finance long-term projects. But in this area we are, alas, completely dependent on our environment. For example, it is unlikely that a bank here would undertake to finance Snapchat, Skype or Tesla, because under standard analysis not one of these companies would pass our risk management.

This directly affects the country's development. Many projects with enormous potential simply cannot be financed, and solving this does not require national companies, the National Agency for Technological Development and the like, but simply a properly functioning stock market.

In retail lending, we have already come a long way, and there are practically no banks left where consumer loans are assessed manually. A machine does it for us, and it also decides, using complex statistical models, who gets a loan and who does not.

We have difficulty with long-term money for mortgage lending. However, in developed countries this problem was solved long ago, again through the stock market: bonds can be issued against such mortgage loans and sold on the market at any moment.

For a project to be financed, all it needs is a guaranteed, stable cash flow, and that is all. This is better than any collateral and carries the least risk, and the project's duration no longer matters for lending purposes. But in our banking system this is practically unrealistic. For example, a power plant with a 50-year service life located near a large city would have a virtually guaranteed stable cash flow, and there would be no need for it to repay its construction loan within 5 years.

In a few years, operational payments will move entirely online, and banks will no longer need so many tellers and settlement and cash centers. A simple example is legal entities, which already make about 90 percent of their payments through online banking.

Now it is the turn of individuals.

For example, at our bank you can already make a great many payments through mobile banking: utilities, phone bills, fines, taxes, tuition (very relevant before the start of the school year), schools and kindergartens. And that is not a complete list.

Of course, in Kazakhstan this process will not be quick, because the older generation finds such things very difficult (I judge by my own parents).

I am very glad that the government has appointed a dedicated Deputy Prime Minister to implement the Digital Kazakhstan program, because there is still a great deal that we need to digitize.

For example, for the banking sector, it is very important to legalize electronic dossiers so that legal entities can replace handwritten signatures with electronic ones. A digital signature has supposedly been in place for a long time, and all electronic certificates are accepted with a digital signature, but financial statements, charters, contracts and so on are not, even though a digital signature is much harder to forge.

If the state resolves this, it will not only shorten the time needed to accept and review documents, but also help preserve the environment.

I think that in about 10 years we will have a minimum of settlement and cash centers, banks will mainly provide electronic services, cards will disappear (integrated into mobile phones), financing of large projects will after all move to the stock exchange, and banks will focus on retail, SMEs and securities.

International transfers will most likely move entirely to blockchain, and companies such as SWIFT, Visa and Mastercard will either be restructured or fade into oblivion.

Such are my late-night thoughts :) If you have your own ideas about the banks of the future, I would be glad to read your comments.