The banking sector has been radically affected by technological change, especially automation, to the extent that the industry is nearly unrecognisable compared to twenty years ago. People are beginning to ask themselves, "What is a bank?"

The branch

Customers are now far more likely to transact business using a cashpoint machine than facing a teller across the counter. Speed, efficiency and convenience seem to be the key factors in retail banking these day. As competition between banks increases, the ability to provide new and more flexible products and services distinguishes winners from losers in the market. Banking by telephone is set to become the norm for most personal clients within the next decade; the customer need never enter his or her local branch.

However, there is a price to be paid for these changes. Thousands of jobs have been lost in the banking sector, and more are likely to go. The image of banking has become tarnished; along with many complaints about impersonal service and computer error, many people dislike the more obvious sales role of banking staff. So, have banks allowed themselves to be seduced too quickly by the promise of technology? Or, do we customers expect too much of our bank these days? Do we need to change our thinking and accustom ourselves to a different view of what banks can and cannot do?

Dangerous dealings

In other, more glamorous, areas of the banking industry, new markets and products have hit the headlines, raising important questions about supervision. The collapse of Barings Bank has highlighted the risks inherent in derivatives trading, a complex and extremely specialised area in which the potential for disaster apparently equals the potential for reward.

In themselves, derivatives are neither good nor bad; it is the use they are put to which matters. When they are used to hedge a financial position, for example, derivatives are an invaluable tool of a company finance director. Nevertheless, unregulated trading by bright young men in dealing rooms and a lack of understanding of these instruments by senior managers within a bank increase the danger of future collapse.

The Barings episode has focused the attention of senior bankers on what goes on in their dealing rooms and has prompted regulatory authorities to look more closely at how this lucrative but volatile industry should be policed.

Globalization

Another issue in banking is the question of globalization. It is not so many years ago that the term "global player" was on the lips of bankers in many countries across Europe, a proud boast in the faces of less adventurous provincial rivals. European banks made expensive purchases in the United States and elsewhere, some more successful than others. Cultural differences and ill-considered strategies have since shown that there is more to the process than simply putting a logo on a letterhead. While it is certainly true that banks need to follow their customers and to be present in emerging markets, some have felt that they would prefer to be national banks with an international presence, rather than truly multinational institutions.

So where does banking go from here? The industry is changing so rapidly that it would need a brave man to answer that question with any degree of confidence. Two things are, however, certain. Firstly, the information revolution that is taking place in all sectors of the industry will continue to have far-reaching effects within financial institutions. Secondly, as a result of those changes, a bank of the twenty-first century will bear little resemblance to its historical forebears founded six hundred years ago.

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