The future for banking is cloudy

Europe's crisis is masking a deep structural change in banking which, like retail and media, will see new technology transform the industry, leaving legacy players bewildered.

The European crisis debate focuses on Greece, Spain, Italy and the euro. But in fact those countries are really the public face of a deep European banking crisis.

And as European banks fund around three quarters of global trade and are major suppliers of wholesale deposit money to Australian banks, the European crisis becomes a deep world and Australian problem, which affects stock markets.

But when you have a crisis like that, it can mask a deep fundamental change taking place within an industry. And so in banking there is a change occurring that is akin to what has happened in the newspaper, retail and other industries, where new technology transformed the industry, leaving the legacy players bewildered.

If you Google words around bank deposits you find that the overseas banks using the internet in Australia – including ING and Rabobank – plus NAB’s UBank are offering significantly higher short-term term interest rates than the majors.

And for deposits of up to $250,000 they carry a government guarantee.

At least one of these banks, ING, is able to offer those rates partly because it is using cloud computing to transform the way it operates.

Cloud computing is the next revolution in internet technology (and there will be plenty more) and banking is in the frontline of the change that it brings.

Log onto this video, which will show just how ING is using cloud computing, and then ponder its implications.

I well remember the days when newspapers dominated classified advertisements. Newspaper owners could not imagine a world where the internet would relegate them to second-rank players in classified and in some ways news dissemination. The same development caught retailers off guard and they are now changing their business models.

We have a long way to go in the banking industry and the size and security of the majors still provides a huge advantage.

But given what is happening in Europe, banks are going to need more and more local deposits. Cloud computing may not provide the game-changing advantage that the internet gave groups like Seek against newspapers but it may foster price wars akin to what Ruslan Kogan has done to the appliance industry (Ruslan Kogan - maverick or master? February 8, 2011).

On a wider front, cloud computing is going to change many industries. It is particularity useful in enabling new products to be brought to market much faster.

It enables smaller enterprises to gain the technology advantages currently enjoyed by larger companies at a fraction of the cost.

And the lesson of newspapers and retailers is that when an opponent – albeit a minnow – gains a significant advantage, you ignore it at your peril.