The "Banking in 2035: three possible futures" report that was recently presented by SAS, explores how the major forces affecting banks may evolve between now and 2035, seen through the lens of three potential scenarios. Each scenario is possible, depending on the course of events that unfold between now and 2035.
More fundamentally, the sector’s rapid evolution and uncertain future pose a basic question: what is the purpose of banks?
For centuries this was not up for debate: banks existed to take deposits, make loans and realise short-term profits. They will surely continue to do this—while also expanding their mission and focus. The current era may ultimately be seen as an inflection point for banks, when they began to balance a traditional shortterm profit-driven model with an alternative human-centred approach that creates longterm value via greater sustainability, resilience and inclusion. The ability to be both agile and purpose-driven, as well as winning customers over with a mix of digital innovation and resonant values, will be a prized asset.
Scenario 1: transformed banks regain trust
At its core, the banking industry’s transformation involves wholly new business models. Traditional profit centres—interest margins and fees— have steeply eroded as digital-only banks and established tech companies reset consumer expectations. In 2035 business models built around open banking innovations are the new norm.
Banks now open their data and related insights to third parties within external data-driven innovation ecosystems. All surviving traditional banks find themselves reliant on third parties and partnerships to provide a range of valuable services and products that were once unimaginable.
According to the first scenario, in the years leading to 2035, banks
pursued partnerships with non-banking
institutions, while mergers and acquisitions
(M&As) accelerated the sector’s digital
transformation. Regulations also evolved to
ensure consumer and investor protections. Making services more equitable and accessible, seizing data-driven benefits and unlocking new business models shall be the opportunities under this scenario.
Scenario 2: climate action paradigm shift
After decades of division and delays among major powers on the climate crisis, substantial collective action occurs in 2035. The world is on track to limit global warming to 1.5°C above pre-industrial levels by the end of the century, preventing the most catastrophic effects of climate change. Substantial adjustments to the ways that individuals live and interact, and how businesses operate, made this climate transition possible. The digital revolution that began transforming the nature of communities, connectivity and work decades earlier is helping societies reach climate goals.
The key to catalysing truly global climate action in the years leading up to 2035 was consumer and investor pressure, new rules, policies and regulations, and technological breakthroughs.
Managing climate risks. Wide availability of ESG data will allow banks to better forecast and manage climate risks, ranging from the physical damage caused by extreme weather to the ability of businesses reliant on fossil fuels to transition to a low-carbon economy. Financing the transition. With support from multilateral organisations, governments and philanthropy, the banking industry will find new financing opportunities to help power the green transition. Greater climate action by governments and public investments in R&D could set the stage for private financing to commercially develop and mainstream decarbonisation technologies
Scenario 3: a fragmented world
Global trade in goods and services is now below 50% of GDP, from about 57% in the years leading up to the covid-19 pandemic.9 Protectionist impulses have led regional blocs to compete on digital technology and trade policies. Now comprising more than half of total global GDP,10 emerging economies assert their own power and independence via strong domestic economies and enhanced regional trade and investment.
A changed global monetary system underscores the new multipolar reality. The SWIFT payment system no longer has a monopoly on financial transactions after a coalition of developing economies—led by Brazil, Russia, India, China and South Africa (BRICS+)— created an alternative system now widely integrated across the global economy. The Chinese Yuan is now the third-largest currency reserve, after the US dollar and the Euro. With the Global South, led by BRICS+ countries, on the rise, South-South national co-operation has significantly strengthened, altering long-standing immigration and global talent flows. South-to-North migration rates of both immigrants and refugees have fallen. This, along with rapidly ageing populations, is intensifying developed countries’ competition for talent to drive innovation.
In the years leading up to 2035, continued
global fragmentation accelerated
competition and regionalism, and BRICS+
countries continued rising as formidable
economic and political powers. Digital
transformation intensified the backlash
against globalisation due to fears of
widening inequalities and job displacement.
As regulations de-risk digital currencies, pushing consumer demand higher, banks will have the opportunity to become more efficient and innovative. Digital currencies could allow established organisations to offer cheaper and faster services,16 becoming more competitive with fintech challengers. On the other hand, banks could lose potential customers with the increased adoption of CBDCs, which would allow customers to pay and save in government-provided digital wallets without entering the banking system.
Shifts in trade flows
in Africa and Asia, in part spurred by regional cooperation on trade and investments, will present
banks with new market opportunities. As they look
to serve more customers in these regions, banks
could assess risks across multiple dimensions:
credit, compliance, reputation and foreign
exchange. They could also win new customers by
stepping up to finance local development projects.
