The Second Renaissance Of Finance

Technology is fast changing the role of banks, as well as the way we perceive money. But can regulation keep up with these changes?

- Johan Fourie

For much of the last five centuries, the core functions of banks have changed little. Their primary role as financial intermediary between a saver who deposits money and a borrower who receives a loan has remained. This exchange facility lowered transaction costs and allowed banks to ‘create money’, loaning out more than they had in deposits. This made banks pivotal in capital formation, which is essential for economic development.

But technology is changing both the role of banks and the money they manage.

Opening a new bank account at Tymebank requires only an ID and cellphone number. Tymebank’s ATMs are found in Pick n Pay stores and provide all the necessary services. No need for expensive bank branches and employees, keeping monthly fees to zero and transaction fees minimal. The bank had more than 300 000 active clients six months after opening in February 2019.

At the other extreme, Discovery Bank will use big data, combined with behavioral economics, to nudge clients towards making better financial decisions. Then there are the new fintech solutions, including the plethora of cryptocurrencies that have revolutionized the way we think about money.

What are the consequences of these technologies?