Christoffer O. Hernæs
More posts from Christoffer O. Hernæs
Editor’s Note: Christopher O. Hernæs is Vice President of Strategy, Innovation and Analysis of SpareBank 1 Group, Norway’s second largest financialinstitution. He was previously a partner at Core Group, where he worked with strategy development and innovation for Technology, Media, Telecom and financial services.
Banking has gone from somewhere you go to something you do. If we are to believe that the sharing economy will shape our future, banking and all financial services will become something that merely exists in the background, similar to other basic utilities.
I have previously argued that financial services are in danger of becoming a commodity due to the disruption of traditional value networks and business models, as well as lack of trust from the millennial generation. The sharing economy is already reshaping the industry through P2P lending, social payments, crowdfunding and P2P insurance. But if we look at what is going on in other industries and the rest of society, the implications are far more extensive.
Jeremy Rifkin stirred up a great deal of debate with the release of his book The Zero Marginal Cost Society where he states that the capitalist era is passing. The catalyst for this is the widespread adoption of technology and the rise of the Internet of Things. According to Rifkin, automation and sharing services will replace traditional means of production, rendering the marginal cost of products and services close to zero.
There is already a wide range of companies acting as proof to this hypothesis.
Uber as a ridesharing service needs no further introduction, but the integrated payment solution where the customers scan their credit cards once gives an indication of the future of payments where the act of paying for a service is integrated with the service itself. According to McKinsey, 80 percent of customer interaction with their banks is through paying for goods and services. When this is integrated into the service, banks become invisible in everyday spending.
The same can be said for insurance, where Airbnb offers homeowners insurance and host-protection insurance as an integrated part of the service. Both Uber and Lyft have expanded their liability insurance for ridesharing, and companies like TaskRabbit include an insurance policy covering property damage to make trusting strangers easier. You may ask yourself, when was the last time you really wanted to purchase travel insurance? Chances are you wanted to travel, and insurance was a necessity. Just imagine the implications for the auto insurance industry in a possible future of ridesharing in self-driving cars with integrated liability coverage.
These services are possible due to a global digital distribution, which creates another challenge for incumbents in traditional industries on an infrastructure level.
For the financial sector, the blockchain technology represents such a technological paradigm shift where the ledger itself is public and distributed. This eliminates the need for costly elements such as clearing and settlement, making blockchain and micropayments the ideal platform. This enables more services to be leased on a granular basis like paying for Wi-Fi by the minute as well as removing more of the friction in the payment process.
But is the sharing economy a true form of social capitalism or a catalyst for wealth disparity where global ecosystems like Google, Facebook and service platforms like Uber and Airbnb create a form of digital feudalism?
According to Quartz, the secret to the Uber economy is wealth inequality. This is supported by research from the Brookings Institution, which states that the birthplace of the sharing-economy movement, San Francisco, had the largest increase in inequality of any U.S. city from 2007 to 2012. Another unresolved issue of the sharing economy is how the fixed cost associated with infrastructure will be financed in a long-term perspective. Even though technological platforms are relatively inexpensive to set up and deploy, history shows that production means low marginal costs of producing often have high initial capital costs.
Regardless of its criticism, the sharing economy is expected to generate revenues up to $335 billion by 2025, and its impact is predicted to affect nearly all industries.
Whatever the outcome, the younger generations show a tendency toward being empowered citizens valuing co-creation and sharing rather than becoming consumers. The financial sector has proven to evolve alongside both social and economic development throughout history, and it is therefore necessary to view banks and finance as an integral part of future services and society instead of a separate entity.
The world is changed. Much that once was is lost and the financial industry is facing an uncertain future.
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