Banks face “Kodak moment” as fintech disruption builds

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Reuters UK | Steve Slater | Nov 14, 2017

LONDON, Nov 14 (IFR) - Banks are facing seismic changes from the impact of new technology that is likely to see many collapse - akin to the near-death of Kodak from its failure to move with the times, a former boss of Barclays has warned.

”Banks are structurally uneconomic in their current format,“ said Antony Jenkins, the former chief executive of Barclays. ”The only solution for banks is to massively automate themselves so they can succeed in this new world.

“But the problem with large financial institutions is they are like museums of technology,” Jenkins said, referring to the massive legacy systems firms are still running. “There is frankly no other industry like it in the world.”

Jenkins, now CEO of fintech group 10X Future Technologies, likened the challenges faced by banks to Kodak, the photo giant that helped invent the digital camera but was slow to embrace the technology and filed for bankruptcy protection in 2012, and Blockbuster, the video rental firm that went bankrupt in 2010.

“Will banks go out of business like Blockbuster? Some will, some will limp along delivering poor returns, and some will figure out how to grip this as an opportunity and rebuild themselves in a new way,” he said at an event discussing the impact of artificial intelligence.

Jenkins spent 29 years at Barclays and Citigroup and was CEO of the British bank for three years until he was ousted in July 2015. Last year he founded 10X, which advises clients on new digital platforms and in September raised £34m in funding from investors led by China’s Ping An.

Two years ago Jenkins warned banks could have to slash half their jobs and shut half their branches within a decade. “I think I might have underestimated,” he said on Monday.

He was not alone in warning that banks need to adapt.

“It’s a Kodak moment for most of them, but not all,” said Gael de Boissard, a former co-head of investment banking at Credit Suisse who now invests in and advises on fintech.

De Boissard said the winners will be at either end of the scale. “If you’re very big, like JP Morgan or Goldman Sachs, or very small, you will win. If you are in the middle, you will die,” he said at the same event.

De Boissard said the biggest firms can use their size and scale to invest in technology to stay ahead, while many small firms can stay nimble and make inroads, in contrast to those struggling in the middle ground.

STACKING TECHNOLOGY

Jenkins said there is “unprecedented technological innovation” across industries. “What makes it different today is the pace at which these technologies are moving independently, and the combination of these technologies stacking on top of each other.”

Banking will be shaken up by the combination of artificial intelligence, the internet and distributed ledger technology, such as blockchain, which will do away with the need for central counterparties on transactions, he said. And while banks hire tens of thousands in their technology arms, often they are mostly maintaining legacy systems.

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