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Let's proceed. So we know that we are now in the world where people live on the Internet.
When the social media plays a significant role,
and now the bank faces this customer crowd.
So what can we say about this?
Well, does that mean
that over the best part of this course we've talked about anything irrelevant,
does that mean that we are actually entering the era of global prosperity?
Well, maybe. But for now,
it's too premature to say that our approach
with private information and monitoring is really outdated.
Let's take the following walk if you will.
For quite a while,
people who used bank services used credit cards as a form of small loans,
so the people use credit when they would like
to get something in which they do not have enough money.
Well, they're willing to pay off this loan later,
but they would like to get something now,
something sort of expensive,
maybe a car, maybe something else, and as you know,
the whole approach of getting a mortgage is a way of getting a house right now,
and then taking an obligation of pay off of this house over a very long period of time,
maybe as long as 30 years.
So, we can say that credit is
really valuable for you when you would like
to get something but you do not have enough money.
Now, a debit card for example,
is sort of a little bit different situation,
you do have this amount of money.
And now, you just use a debit card as a convenient form of making a payment.
It's basically the same as you have paid in cash but in a modern way.
So we can see that there is,
let's say, debit card, and this is convenience, while credit card,
this is money.
I mean, when you elect.
Now you can see that if you talk about small transactions
like you're buying a pen or you're paying for the Internet or so,
you clearly prefer convenience.
However, when it comes to the point of purchasing something
for which you do not have enough money on your account,
then you vote for credit.
So you can see that here,
sometimes people vote for something that they don't own right now.
For that reason, they take loans,
and you know that a lot of people around the globe take different loans,
so credit is valuable.
Now, we also know that when banks provide loans they do some monitoring.
Basically, that means that they would like to make sure that these people payback.
And now for some minor loans, again,
oftentimes it's sufficient to use the profile on a social media.
However, when the amount goes up,
then you have to verify certain things.
Let's say verify employment,
verify your income, and oftentimes, well,
you can send all the information clearly by e-mail,
but still, that is something that must be done.
So we can see that this competition between,
let's say, money and convenience, it still persists.
And the greater the amount,
the more the weight of credit and the less the weight of convenience.
I'm not saying that a bank should
make their loans in the most inconvenient way, this is out of the question.
I'm just saying that it's not so
easy as a pre-approved thing because pre-approved things go for small amounts.
Because here, the bank can take this risk even if anything happens,
but it makes so many prepaid loans and the track record
of repayment is so great that the bank can take these minor risks.
However, if you're talking about a greater amount, that's another story.
Now, by the same token,
let's say a few words about the fact that we say that
monitoring may be equivalent to social media.
So now, we see another competition.
We can see, let's say,
the crowd with its freedom or its opinion,
and we see expertise
which stays with the bank experts and there is really tough competition here.
Indeed, when you are talking about the banking service that is not really complex,
then do you trust the crowd?
Well for one great reason,
because the crowd is independent.
The crowd is not the bank,
so the bank might and often times does have its own interest in selling something to you.
However, the media is more independent and more objective if you will, that's right.
However, when it comes to a more complex, more special product,
so what you can get from the media is only,
maybe the experience of the people who took the same.
But maybe, this exactly the same is really hard to find.
So whenever the weight of expertise is
high then you are back to sort of classic monitoring,
not the social media monitoring.
So I'm not trying to fiercely pull back all the services of the old outdated bank to say,
"Well, they are still relevant."
Well, they are, to the extent you're dealing with
something that involves significant amounts of money,
and therefore, significant pieces of private information.
Well, let me give you another example.
Let's say that you work and you get the promotion,
if you get the promotion the bank sees that.
Let's say that every month the amount of money that
your employer sends to your account has now grown up.
Now the bank realizes that and immediately starts to approach you,
we're offering you a little bit more advanced products,
maybe your gold card is potentially replaced by
a platinum or the bank gives you some other options that previously you could not afford,
you could not afford in a convenient way,
in our terms in the debit card way and everything is fine.
And you get a promotion but you still keep walking with your backpack,
in shorts and sandals,
and you don't care about the existence of a bank office at all.
But what if you get a fundamental promotion or you just, lets say,
you are a small entrepreneur, you have a small startup,
and you sold your business and then you
got some hundreds of thousands of millions of dollars?
Well clearly, the bank sees that,
and at that moment you start to think what you do with that.
Well, you can use that for consumption because you can buy a more expensive car,
you can upgrade your apartment,
you can buy a home, whatever.
But maybe the amount is
larger and you do not want to change
your lifestyle and you start thinking about investing.
You would like to buy something that is an asset,
that gives you some more money in the future.
Now in this case,
you see that we are back to the story of expertise because you would like to,
let's say, buy some stock,
and not only through your online broker,
that is the most liquid stock,
but you would like to make the position,
or you can think of getting a position
in the some other assets in bonds or in the remittance,
or maybe a combination of those.
So as soon as we start talking about investing,
then clearly you need more expertise.
And this investing is unlikely to be sold via SMS,
and somehow there is a change with this person walking around the street in shorts,
with his backpack, somehow his or her backpack.
These people, they find some time to go to the office of the bank,
they find some time to change themselves a little bit.
They dress up normally,
and then they go there and say, "Well,
you know, we would like to consult with you, maybe you,
in this bank know something about that and well,
you get some proposal and then you start discussing
that with your friends maybe on the media too,
but you may not be willing to discuss the option to make an investment of a couple
of million dollars with the majority of your friends on Facebook for various reasons.
So what I'm saying is that whenever the amount grows then your behavior changes.
And then, the percentage of
the weight of this private information issues goes up fundamentally.
Now, I'm saying that because now,
there are so many options to make a significant amount of money really quickly
because people engage in startups almost every day.
And for younger people who are advanced
in their understanding of modern technology both I.T.
echnology and some other,
they can actually jump from the position of just a freelancer to the position
of the owner of the business and
then a successful individual with
a significant balance in their bank account very quickly.
So we're not talking about only the needs of very wealthy people,
people now become wealthy very quickly.
And therefore, what I'm trying to say is that there is no contradiction here,
to the extent that you need to pay for a cup of coffee at Starbucks,
you will still use your debit card or your phone or Apple Pay or whatever,
without even thinking about that.
But when it comes to making
a more significant or more greater decision in terms of the amount of money,
then you will find some time to go to the bank office.
And then, you'll find some time to talk to
your manager or maybe a group of managers personally,
because big money, they like this way of being treated and that must be kept in mind.
Again, I am specifically emphasizing that there is no contradiction here.
A modern bank cannot rely only on these high net worth individuals
anymore because the crowd of normal people,
people at large whatever,
no offense intended here,
it's so great that it really,
the overall amount can dwarf that of the high net worth individuals,
but still this service exists.
And from here, making this emphasis that there's no contradiction,
we are moving towards a final episode of this week in which we briefly
discuss this special kind of service that is provided by banks,
that is called private banking.
This is the service they provide for high net worth individuals.
Konstantin KontorDirector and Professor of Finance and Strategy
