Virtual Competition Presents A Real Challenge


By Anita Hawser

Banks are facing growing competition from technologically advanced nonbanks as customers seek more convenience and higher service levels.

Imagine a world where money is no longer thought of as something physical but as virtual credit or currencies that are exchanged via social or peer-to-peer networks without the involvement of a bank at any point in the transaction. At last year’s Sibos conference, which brought together a host of the world’s biggest banks, that is exactly what a group of traditional bankers dared to contemplate. They watched a film about the future of money that featured young Generation-Y consumers who, disillusioned with the debt- and risk-based models of conventional banking, had come up with innovative peer-to-peer lending mechanisms to help bridge the social divide between the banked and the unbanked.

The Sibos conference, which is organized by the Brussels-based interbank messaging network SWIFT, is an opportunity for some of the world’s largest commercial and corporate and investment banks to debate the latest issues affecting global trade, payments and securities. In the past the biggest emerging threat to banks’ dominance of the payments business was PayPal, which devised a way to move money securely online albeit still using bank accounts. Over the past two years, however, talk of peer-to-peer lending and social networks, which have the potential to bypass banks, has crept onto the main conference agenda at Sibos.

Back to the Future

Social network sites like Facebook already boast a virtual currency called Facebook credits, which can be used to buy virtual goods. Could Facebook credits become a global virtual currency? “The whole idea is that what used to be considered as money has been disintermediated by new types of social networks and commercial models within Facebook,” explains Chris Skinner, CEO of research network Balatro and an author of a number of books on the future of banking. “It is no longer money that is important; it is information and the virtual exchange of value—whatever is believed to be of value, whether it is ideas, gaming credits or air miles.”

“It is no longer money that is important; it is information and the virtual exchange of value”

“What used to be considered as money has been disintermediated by new types of social networks” – Chris Skinner, Balatro

What the future holds for banks and other financial institutions in a world of peer-to-peer exchanges will be debated during one of the main conference sessions at the Sibos conference in Toronto this September. Skinner says there is a discussion about creating a global clearing mechanism for social networks that could potentially be run by the likes of Google. He believes existing payment infrastructures may not be suited for this new, socially interconnected world and that the banks, although they may still be involved, could end up just becoming payment-processing pipes, as they have in the case of PayPal.

“Cloud means you can lower the cost of ownership. You don’t have to deal with software upgrades”

“Cloud infrastructure enables you to bring capabilities closer to customers and at a lower cost” – Colin Kerr, Microsoft

Yet in the corporate banking space, George Ravich, executive vice president and chief marketing officer of Fundtech, which provides payment-processing technologies to major global banks, believes the penetration of social networks will be minimal. At a recent Fundtech customer conference in the US, the vendor surveyed bankers about their professional and personal use of social networking. Sixteen percent of bankers said they used social networks all the time in a professional capacity; 38% said they used them occasionally. As to corporations, Ravich points out that companies often restrict the use of social media in the workplace, so he doesn’t believe social networking will take off in that sector.

Colin Kerr, financial services industry solutions manager at Microsoft, which is a major exhibitor at Sibos, says some of the large retail banks are thinking innovatively about how they can stay connected to their customers in social networks by, for example, offering services through Microsoft’s Xbox gaming community. When it comes to corporate banking, though, he says the application of social networking technologies is likely to be restricted to customer self-service or sharing information to solve a problem. “Sharing information externally about what they are doing in the corporate transactional world is still a leap too far,” says Kerr.

With the consumerization of corporate IT—for example, business customers of banks that use smartphones in their private lives but also want to use them in a business context—Kerr expects that mobile corporate banking will remain a key theme at Sibos 2011. “Application vendors are deploying mobile technology to banks and banks’ customers,” Kerr notes, although he adds that defining and deploying mobile corporate applications is still a challenge for the banking industry.

More than 40% of global transaction banks surveyed at Fundtech’s recent customer conference (up from 26% at its 2010 conference) said they are seeing strong interest in and demand for mobile corporate banking. “Every major bank needs to have a mobile-banking app,” says Ravich.


Ravich, Fundtech: “Every major bank needs to have a mobile-banking app”


Kerr, Microsoft: Mobile corporate solutions still a challenge for banks

Another technology that has clearly moved from the conceptual to the implementation phase is cloud computing—employing remote servers to store data and applications—which is on the main Sibos conference agenda for the first time this year. Kerr of Microsoft says the cloud in financial services has moved from productivity-type applications such as CRM and email to demand for vertical financial services applications in areas such as bank risk modeling and records management and as a way of enabling banks to more quickly deploy new kinds of financial services, including financial inclusion applications such as microfinancing. “Cloud means you can lower the cost of ownership,” explains Kerr. “You don’t have to deal with software upgrades or up-front IT investment. Cloud infrastructure enables you to bring capabilities closer to customers and at a lower cost without having to build and maintain remote data centers. That way you can bring solutions to market, for example, in emerging markets where it may not be feasible or cost-effective to have bricks-and-mortar offices.”

Ravich also believes the concept of a “community cloud” in banking is gaining ground as a means of means of keeping banking data within country borders in order to comply with regulations.

alt Special Report : Sibos 2011