Banking

The banking industry has undergone a huge amount of change in recent years. I have witnessed banks overhaul strategies underpinned by legacy systems that no longer work for the modern day customer. Simultaneously consumer behaviours have been shifting dramatically, accelerated by the global pandemic.

Having the benefit of perspective is a wonderful thing. Witnessing fintech’s transformation from a niche concept to a mainstream industry we’ve seen a lot of change. More customers, improved business models and a thriving ecosystem. One key change is the approach to banks.

In February 2019, an Australian commission on banking misconduct released shocking findings on the chronic misbehaviour of the country’s top banks. Customers wondering what progress has been made in redressing these wrongs may be disappointed, as watchdog ASIC has taken a more accommodating approach toward banks than many would have liked.

A year ago, the European Central Bank announced that it would, like many other central banks, investigate the pros and cons of launching its own central bank digital currency. The investigation continues, with supporters and opponents weighing in on whether a digital euro would be more beneficial or more harmful to eurozone citizens.

To the bank customer, a savings account seems like the safest destination for their excess money. But is it? Many are unaware that, under the fractional-reserve banking model, banks are required to hold only a fraction of their funds and are free to lend out the remainder. Is this the best model, or would a replacement function better?

Russia’s encroachment into Ukraine was met with a swift, mainly financial rebuke from the West, including its major banks, which have been willing to suffer, in some cases, heavy losses as they unwind their business dealings in the offending country. Even so, it could be months, even years, before these big banks completely exit Russia.

India is progressing toward releasing its own central bank digital currency. What particular benefits would having its own CBDC bring to India? Lowering printing costs, improving cross-border transactions, leveraging CBDC interest and bank market power, countering private payment monopolies and boosting financial inclusion are just a few.

In the historic Brexit referendum six years ago, Britons voted to leave the EU. Matters are far from settled for banks doing business in the EU, with the EU requiring them to maintain sufficient staffing and capital to meet governance and risk-management standards. The movement of human capital from the UK to the EU is likely to continue.

For a long time, international banking depended on the London Interbank Offered Rate (LIBOR) for interest rates. However, this benchmark is being replaced in the United States by the Secured Overnight Financing Rate (SOFR) and will cease to exist by July next year. The LIBOR to SOFR transition is already well underway.

Iceland may seem cut off, but its banks are well connected to the digitalisation leading financial services away from the traditional brick-and-mortar model to a dynamic new framework allowing people to bank anywhere, anytime. From mortgage applications to purchase payments, Icelanders have fully adopted the promises of smart banking.