The digital sprint that’s leaving classic banks behind
Digital banks are sprinting ahead, and modernization is the key remedy for outmoded processes and systems. Banks founded in the 20th century or earlier (C20 banks) must modernize fast to compete. AI solutions are part of the answer, but they’re insufficient in isolation.
Today, bankers are free to make risky bets (loans) with risk-free money (deposits). But reality bites. Banks must comply with pervasive, post-credit-crunch regulations. Capital adequacy means they must hold 8% Tier-1 capital for the risk-weighted assets on their balance sheet, so decision makers must carefully consider any loans they choose to hold.
Private credit takes speculators’ money and deploys it in interesting ways. Its MO traces that of the loan funds as proposed way back in 1930. If people want to risk money for a handsome return, here’s a smart way to do it. In fact, private credit is oversubscribed, with investor money eclipsing investment opportunities.
By making loans and offloading them to private credit, traditional banks are quickly becoming little more than client acquisition engines, a role they’re not built for.