Easy Money: Fuel for Innovation or Fool’s Gold?

Unprecedented in scope and scale, over the past decade central banks have unleashed waves of monetary easing. For example, in August 2015 China devalued the yuan to ensure the growth trajectory from the past two decades sustains. In contrast, the US dollar and US treasury bonds are viewed as safe havens for corporate banking software. As a result the US dollar has strengthened and US bond yields are at historic lows.

This begs the question: is all the easy money circulating in the financial markets and economy fuel for innovation or fool’s gold? Banking in general and Wall Street in particular are on a roll since the 2008 financial crisis. Banks have leveraged the unprecedented core banking software to shore up their balance sheets.

They are on much stronger footing despite the burdens of regulation. Leading banks have systematically spun off core banking systems that are not deemed to be strategic. Instead leading banks have focused on segments where they can best serve their customers. According to Bain, banking customers now handle more of their banking interactions, on average, via smartphones and tablets than through any other channel. Banks must rethink how they best serve their cyber security software customers.

Both emerging fin tech players (e.g. Social Finance) and established fin tech players (e.g. PayPal) have forced this core banking system trend. These providers’ business models center around the customer. Additionally, these providers simplified the delivery of financial services. The banking industry has taken notice. Executives at leading financial institutions are responding by evolving their strategy and business models.