How Fintech Innovation is Strengthening, not Undermining, Relationship Banking

It is tempting to think of banking as a profession steeped in tradition and reliant on personal reputations. Banking, however, has a long history of innovation driven by technology. From the introduction of paper bank notes in seventeenth-century Europe to the emergence of derivatives trading in the 1970s and 1980s, and the further development of electronic trading in the 1990s and 2000s, the banking sector has been constantly in a state of flux.  

Now, with the emergence of cloud computing and next-generation connectivity, to say nothing of big data, artificial intelligence (AI) and blockchain, the process of technological disruption and innovation is accelerating. 

In retail banking, this is having the effect of giving the consumer a greater sense of control (managing your own investments via a digital dashboard, receiving more-or-less instantaneous approval for online loan applications, checking balances and transactions at the press of a thumb on a phone screen) while simultaneously reducing the contact and engagement you have with real people and processes within the bank. 

In corporate investment banking, however, the same new technologies are driving clients in the opposite direction. The greater the speed and opacity of transactions, and with new fintech and data companies entering the market, a greater demand for long-term inter-personal relationships between client and bank has emerged. This requires a high degree of trust, especially for the most complex products. 

That is not to say that investment banks will not continue to take advantage of digitisation in their products and services. At a recent talk in Oxford, for example, Mauro Micillo, Chief of the IMI Corporate & Investment Banking Division of Intesa Sanpaolo, explained how the bank groups its services according to the level of interaction needed, from low touch (services such as  current accounts, foreign exchange spot transactions, and cash equities) through hybrid (including short-term lending and  FX hedging) which combines digital offerings with specialist support, to high touch (the likes of mergers and acquisitions) where  advanced competencies and superior relationship-management capabilities are a must.  

Micillo argues that in time, products currently in the hybrid cluster will become commodified, need less specialist support, and will move into the cluster of low-touch products. As entrepreneurial fintech companies explore the potential of expanding technologies, particularly AI and blockchain, these will feature increasingly at every level. 

Taking this analysis, it seems clear that relationships and trust will remain critical components of the banking business. Three things are driving this. 

First, clients want it.  Relationship management ensures that the client sees and experiences ‘one bank’, as opposed to an anonymous and impersonal dashboard or a multitude of teams providing inconsistent services or ideas. This may sound pretty basic, but these have been and still are crucial potential pain points even for the most sophisticated clients. 

Second, it makes sense for the banks. As the number of products and services available have multiplied, so too has the need to organise how and when to speak with clients.  Left to their own devices, product teams could independently contact the same person at the client multiple times every day, causing irritation and confusion.  Organising through relationship management teams prevents separate teams from pitching for the same deal, information hoarding, and conflict management. 

And third, it reflects the more nuanced environment in which clients themselves are operating, where an increasing focus on business purpose and on ESG (environmental, social, and governance) issues leads to a requirement for the type of advice that has traditionally been the core of relationship banking. 

So, while it is tempting to think that fintech and AI will lead us to an increasingly impersonal, data driven banking world, I argue that technology has in fact reinforced the importance of relationship banking. Successful banking today requires both technical expertise (“capability”) and demonstrations of personal integrity (“character”) – the two terms that we refer to as the ‘Janus faces of reputation’. Fintech and AI have the potential to build perceptions of capability, for sure.  But if these systems are not seen to operate with integrity and transparency, trust will erode.  Relationship banking has an important role to play in this new technology driven world.  

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