How Thinking about Markets and Institutions Influences Thinking about the Future of Banks

Narratives are playing an increasingly important role in economics since their performative character has been realised. Banks are not unaffected by this, as they face many future challenges and are thus directly affected by narratives. For this reason, this article aims to reveal the future prospects within the academic landscape on the basis of a scoping literature review to create transparency about where the narratives come from. So, it is not the intention to make another prediction about the future of the banks. The paper presents contributions that make explicit statements about the future of banks, either a description of the future or an assessment of the future prospects of banks. Two databases were searched in this context, IDEAS/RePEc and Scopus, for the period from 2001 to 2021. A total of 99 relevant contributions were identified and finally used to answer three questions: (1) What challenges are seen for banks in the future? (2) What kind of future is depicted? (3) How are the future prospects derived? It turns out that challenges are seen in profitability, regulation, technology, and customer behaviour. The future prospects vary considerably, which puts the focus on the last question. Among other things, an overemphasis on intermediation theory tends to generate negative future prospects. It can be seen that the importance of the assumptions for the derivation of future prospects has not yet been recognised and further research is necessary to get a more complete picture of the future of banks.

Nowadays, digital transformation is a buzzword in an academic and business environment. Business, education, banking, government, manufacturing – almost every industry is being "digitally transformed" in the period of the fourth industrial revolution. Many studies, specifically in the last 25 years, tried to discover the elements, drivers, and barriers of digital transformation and the value creation through digital transformation (Verina & Titko, 2019). There is a variety of digital technology strategies. The consumer behaviour triggers a series of technological advances, for every bank must continue to prepare for the future of banking. Conventional banks that currently still have customers, namely traditionalists who feel they don't need digital channels, must also be ready (Insight, 2020). Likewise, digital banking must be ready for the use of future technology. The failure of banks to adapt to consumer needs and the adoption of digital technology will have a significant impact. The speed or phase in digital transformation for banking, specifically in Indonesia, is not the same. Digital transformation in Indonesia's banking industry started quite late compared to other Asian countries, such as Malaysia, Singapore and South Korea. This is due to, among other things, the geographical conditions of Indonesia, which is an archipelago where digital literacy is not homogeneous, and people still have traditional beliefs and preferences for doing their banking in conventional physical branches (Winasis, 2020). The Indonesia Financial Services Authority (FAS) stated that by 2030 in Indonesia, all current banks would be digital, so it is expected that there will be no more branch offices. In addition, native/traditional banks are currently competing with challenger banks and fintech. Banking must be able to know its position in the middle of this digital transformation phase to find the right strategy for future requirements. There are many papers that study about the digital transformation in many industries including banking, but the research about the parameter that can be used to define the future banking itself still few. The purpose of the study is to enrich the existing literature about the future banking by collecting the parameter for the future banking and answer the research question: How the future banking looks alike? Keywords: Future Banking, Digital Transformation, Open Banking, Banking Transformation, Indonesia Banking

Objective – Customer changes in behaviour during the COVID-19 pandemic prompted banks to swiftly adopt digital transformation systems. Banks work towards a digitalisation of the industry by employing information technology in the financial sector. Methodology – The digital transformation brings opportunities as well as challenges. This study aims to enrich the study of DX, specifically in banking, by profiling future banking from the viewpoint of digital transformation. This study used the review method by consulting 21 articles that were complied with inclusion criteria. Findings – The findings showed that digital transformation has affected banking in some aspects, including the development of facility and equipment, application design, services and products, security and privacy protection, big data, policy and regulations, innovations, consumer satisfaction, as well as stock returns. Novelty – Based on this literature research, a future agenda can be prepared, including the drivers for future banking, the workforce profile for future banking, as well as the organization design for future banking. Type of Paper: Review JEL Classification: F65, G15, G21 Keywords: Future Banking; Digital Transformation; Open Banking; Banking Transformation Reference to this paper should be made as follows: Lydiana, Y.F; Gustomo, A; Bangun, Y.R. (2022). Future Banking In Digital Transformation (DX) Dimension: A Literature Review, J. Fin. Bank. Review, 7(1), 59 – 70. https://doi.org/10.35609/jfbr.2022.7.1(4)

The banking sector are improvising their services on regular basis but the implementation of biometrics in Automated Teller Machine has never been a solution as the information is lacking and the full potential of this mechanism has not been explored. Researchers highlighted about the biometric technology an in-depth study is done to identify the available types of biometric technology which lead and suits the idea of future banking. The major finding by reviewers leads to the high potential of biometric as security aspect in achieving an ideal future banking solution through a comparison of biometrics, where fingerprint biometrics has an average of above 50 percent on compatibility and the flexibility of the implementation and benefits compared to face image, iris recognition, voice recognition and vein pattern. Past reviews highlighted that another factor that determine that the facial and iris recognition can be a possibility or a substitute for fingerprint recognition is the complexity where attempts to steal this type of security solution is almost to impossible. Biometric technology is proven that it is a technology which able to enlighten any banks towards a desired future banking ideal. This paper will identify the adoption of biometric technology in Automated Teller Machine and its gaps in achieve the ideal future banking.

A strong banking sector can be termed as lifeline of an economy. It is one of the fastest growing sectors in India. Because the future of banking will be driven by major technological changes and will transform drastically. The future of Banking is 'Digital’. The covid -19 pandemic has re-designed our lives in terms of how we work, how we shop, even how we bank and this has led to major change in customer behaviour. This paper focused on the importance of e-Banking ,although e-Banking system provide us with easy access to banking services, they have introduced new business challenges .This paper enlightens the knowledge light on new innovations in banking sector.

Brad Carr, Managing Director of Digital Finance at the Institute of International Finance, concludes the book with a futurist exploration of open banking in “From Open Banking to Open Data and Beyond: Competition and the Future of Banking.” He argues that the development of open banking to “open data” will have a transformative impact on business models of not only banks but all incumbent firms. Consumers, as they become better informed about the value and usage of their personal data, are beginning to seek agency, whether through ownership or control, over their data, transforming the open data economy. He explores the opportunities and challenges of data proliferation and what “open data” sharing could look like. He argues that data asymmetry can hurt competition and how open data flows will impact entire business sectors and perhaps favor BigTechs. Carr explores how data asymmetries can harm competition and the potential efficiencies and inefficiencies of reciprocal data-sharing in which tech companies share their data with banks. Perhaps, banks, which are becoming tech companies in their own right, could become BigTechs, and BigTechs will either become or partner with banks. Finally, the author explores how platformization of financial services will change the entire landscape of finance.

Despite the conspicuous explosion of digital banking, mobile banking, fintech startups and the implications of AI adoption, there is a relative dearth of empirical studies that provide a quantitative analysis of the impact of the Fintech on banks' financial performance. Instead there is a significative literature on internet and multichannel banking and the latest studies seem to find a positive relationship with profitability. Based on this theoretical background and in-depth research – from different perspectives, considering both financial and legal implications of the phenomenon – this work provides an empirical analysis on a data panel of 38 European Banks for the period 2013-2015 (114 observations). The author presents research approach and hypotheses; then, there is a description of the data, methodology and results. Findings suggest: 1) the existence of a significant positive relationship between the technological innovation (fintech) and bank profitability; 2) the existence of a negative relationship between the number of physical branches and bank profitability. The author concludes by discussing the limitations and future research.

The Future of Banking - Innovation, Risk and Inclusion [Working Title

Economic AffairsVolume 32, Issue 2 p. 110-111 The Future of Banking – Edited by Thorsten Beck David Howden, David Howden St. Louis University – Madrid Campus, [email protected]Search for more papers by this author David Howden, David Howden St. Louis University – Madrid Campus, [email protected]Search for more papers by this author First published: 07 June 2012 https://doi.org/10.1111/j.1468-0270.2012.02146_4.xRead the full textAboutPDF ToolsRequest permissionExport citationAdd to favoritesTrack citation ShareShare Give accessShare full text accessShare full-text accessPlease review our Terms and Conditions of Use and check box below to share full-text version of article.I have read and accept the Wiley Online Library Terms and Conditions of UseShareable LinkUse the link below to share a full-text version of this article with your friends and colleagues. Learn more.Copy URL Volume32, Issue2June 2012Pages 110-111 RelatedInformation

This paper contributes to prior literature and to the current debate concerning the prudential supervisory framework to measure interest rate risk in the banking book (IRRBB), which has been significantly changed on April 2016, when the Basel Committee on Banking Supervision (BCBS) published the latest update of its measurement standards. The consultation launched by the European Banking Authority (EBA) on December 2021, aiming at introducing the supervisory outlier test (SOT) on net interest income (NII), presents several issues and policy implications which could influence in the next future banks' asset and liability management strategies, their internal control systems, risk policies and procedures. By analyzing a sample of 28 Italian commercial banks at the end of 2021, representing more than 70% of Italian baking system’s total assets , we observe that the thresholds proposed by the EBA appear very strict and significantly depend on: i) the sample considered, ii) the lower bound applied to interest rates in the downward scenarios and iii) the current level of interest rates term structure. Our results suggest that the proposed values should be considered with caution as it seems that their potential impacts have not been thoroughly assessed. Further analyses are therefore necessary to guarantee greater robustness of the methodology used for the calibration of the thresholds, taking also into account a wider sample of banks and longer time series, as well as the correlation between the two approaches.

The highest impact of Covid-19 crisis on banks is related to their loan portfolios where many borrowers are facing sharp collapse in their income, and difficulty in repaying their obligations. Regulatory and supervisory authorities have issued statements or guidelines to banks on how to deal with the impact of the outbreak, including relation to easing loan terms and conditions for impacted borrowers. This paper aims to provide some policy views on the appropriate response to Covid-19. Supervisors and regulators should play an integral part contributing to public policy responses to the pandemic. Consistent with their mandate of ensuring safety and soundness, supervisors’ action requires a balancing act where banks are encouraged to restructure loans and use the flexibility embedded in the prudential framework by financing viable firms. This paper presents the state of arts and some considerations about the future banks’ conditions facing NPLs increase and their earnings reduction.

Purpose The purpose of this paper is to empirically appraise the health of banking systems by applying a new theoretical framework based on resilience and stability simultaneously. In line with complex system theories, the authors will consider the dynamics of the banking system as a whole, analysing not only banks individually but also the broad environment in which they operate. For doing so, the authors propose a composite indicator (CI) for analysing the resilience and stability of banking systems of developed countries. The main purpose of the indicator is not to make predictions on future banks’ behaviour, but rather to use it as a tool for appraising the overall health of the most salient banking systems. Design/methodology/approach The authors have designed a theoretical framework of resilience and stability taking into account the review of previous literature. The authors have identified the main factors underlying these two concepts that can be appraised as complementary targets. The authors have applied multiple factor analyses to identify the main determinants of banks’ resilience and stability, and the authors have constructed a CI giving different weights to the relevant dimensions previously identified. The authors have tried different model specification and the authors have chosen the simplest model that render better empirical results. The authors construct the resilience and stability indicator for the group of G7 countries, Spain and Portugal, from 2004 up to 2015. Findings First, resilience–stability indicators for the group of countries analysed reveal quite different patterns in the aftermath of the financial crises. While some countries have improved its relative position within the ranking, the authors find others evolving just in the opposite direction. Second, the relative position of countries in terms of the resilience–stability indicator allows the authors to identify Canada and the USA as examples of best practices. Third, by analysing countries individually the authors will be better able to identify potential weakness and areas for improvement in each case. Practical implications The evolution of the resilience and stability indicator will serve as an early warning system for policy makers and supervisors in identifying signs of weakness, as well as a useful tool to identify the best practices. Furthermore, this indicator will allow to better assessing the potential vulnerability of banking systems in the advent of a forthcoming crisis. Therefore, this measurement should not be interpreted as an absolute value but as a warning signal of potential weakness in each case. Originality/value The main contribution of this paper to the existing literature is that it introduces a new reconceptualization of the health of the banking system in line with complex theories. The theoretical background is based on a comprehensive framework of resilience and stability as complementary targets. The CI summarises into a single figure a multidimensional concept like resilience and stability. The variables that the authors have used for the construction of the indicator have been validated by applying multiple factor analysis. The authors have empirically appraise the resilience and stability of a group of advanced economies that encompass the group of the more developed countries in the world and the two European cases that have receive financial support in order to see if there are remarkable differences.

Purpose This research incorporated several theoretical frameworks and technological innovations in regulatory compliance to bridge a critical gap in investigating the enabling role of the RegTech sandbox in expanding the effectiveness of monetary and prudential regulatory standards, which collectively influence banking performance indicators such as return on assets, return on equity and net interest margin (NIM). Design/methodology/approach To achieve this research goal, a vector autoregression methodology was conducted on three endogenous performance indicators of panel data from 23 different technological infrastructure countries during the period 2012–2021. By enabling the examination of how exogenous variables of monetary policy tools, prudential regulations influence one another while accounting for heterogeneity across countries. Findings The monetary tools such as required reserve, interest rate and money growth had a modest effect on banking performance. In contrast, prudential regulatory measures such as capital adequacy ratio, liquidity coverage ratio and leverage significantly impact stability and profitability. Besides, the RegTech sandbox dummy variable validated a positive but varying effect on the three performance indicators ΔROA (0.011 p < 0.05), ROE (0.120 p > 0.050 and NIM (0.052 p < 0.050) implying that the current scale and integration of RegTech solutions may not yet be sufficient to produce substantial profitability gains and introduce the need for regulatory updates for better future banks’ performance. Originality/value The study’s findings have important practical implications for policymakers to foster transparency and trust and enable banks to enforce reserve requirements, capital adequacy standards and liquidity ratios more effectively that directly impact their profitability and stability.

This paper estimates the volatility index term structure for the Spanish bank industry (SBVX) using the implied volatility of individual banks and assuming market correlation risk premium. This methodology enables calculating a volatility index for arbitrary (non-traded) portfolios. Using data from 2015 to 2021, we find that SBVX informs about the dynamics of bank returns beyond the standard market volatility index VIBEX, especially when bank returns are negative; and that one-year SBVX beats shorter maturities in explaining bank returns. On the other hand, positive bank returns relate to the dynamics of VIBEX just as much as SBVX, which aligns with the belief that a drop in global volatility (uncertainty) positively affects firm performance and, therefore, bank value projections. We find one-month SBVX better than VIBEX to forecast monthly bank returns volatility, regardless of the tenor we use to compute VIBEX. This paper provides empirical evidence that idiosyncratic implied volatility is just as significant, or even more than global volatility, to monitor current and future banks’ share price performance. We advise using SBVX term structure, short-term VIBEX, and market correlation risk premium to monitor uncertainty and returns in the banking sector and foresee periods of stress in this industry. Our results may be of great interest to those seeking to estimate the banking sector’s sensitivity to uncertainty, volatility, and risk.

The present paper is an attempt to analyse the future of banking in Europe in light of the following specific question: Will the traditional peculiarities of the continental European banking systems persist in the future or are they more likely to disappear in the wake of the evident and serious changes that affect the technological, regulatory and political environment in which the banks operate? Among other things, these traditional features include the importance of relationship lending, the strong role of not (at least not primarily) profit-oriented banks, and the significant differences between the various national banking and financial systems in Europe. Methodologically, this paper is based on an informal equilibrium model with rational expectations.