Banks and banking technology have been intertwined for the best part of three decades, and banks increasingly accept that their financial services offering is being driven by technology. The fascinating thing is that financial institutions calling themselves technology companies does not really attract any comment. Is there anything that oil and gas firms can learn as they go through their transition into energy companies, asks Kay Rieck, an experienced market observer and investor.

This is the first part of a two-part article that compares the different experiences of the financial services sector and the oil and gas sector, explaining why banks are seamlessly metamorphosising into technology companies while oil and gas firms are finding it more difficult to make the transition into becoming energy firms.

I wrote recently that for most of us it’s important to try and ignore den Wirbel or the churn and focus on the big picture, but sometimes someone says something that is simultaneously clearly true, quite obvious, and also so profound that it’s worth taking a moment to process it and give the comment the respect it deserves.

Such a moment came recently when the Bank of America’s chief executive officer Brian Moynihan suggested that these days he ran an institution that was as much a technology company as a bank. With the bank spending in the region of USD3.5 billion each year on new code, and new products and services clearly being led by technology rather than face-to-face services, it’s clearly such a true statement as to be almost unnecessary. But the public acknowledgement is an important moment for the financial services.

Adapt and survive

As a sector, the financial services has adapted to changing situations and constantly innovated to deliver what customers need, but banks come in all shapes and sizes and sometimes it is misleading to talk about the financial services sector as if it is homogeneous. There are small, exclusive, institutions that you only ever find if you are invited to them, there are ambitious challenger banks that are noisily trying to muscle their way into our consciousness, and there are mighty chrome-and-glass wholesale institutions with global corporate presences. For most, but by no means all of these organisations, the digital side of the business has become increasingly important over recent years.

Many retail banks all over the world are reducing their physical presence on the high street as people become more and more relaxed about banking online. The very concept of money is changing as people turn away from cash, paying more and more with a swipe of their phone or a swish of the watch on their wrist. This process has accelerated during the pandemic, with fewer and fewer of us habitually carrying cash when we leave our homes than was the case a decade ago.

Maturing risk tolerance

At the same time, much of the underlying philosophy of banking has been about risk: when to take it and when to avoid it. Risk was what trading desks thrived on in the eighties, nineties and early noughties, when massive fortunes could be won and lost on the markets in a single day’s trading. At a certain point, the leadership teams at various banks realised that it was better to offer consistent 4% returns year on year than put customers’ money at risk by chasing opportunities that might offer 15% in one year out of five.

Couple this with several high-profile bank collapses and near collapses that were the direct result of what could politely be called trader SchabernackSchwindel, and some financial institutions became keen to invest in technology as a way of hedging the risk that their trading desks.

The curious incident of the dog in the night-time

So in a lot of ways, the leader of the world’s eighth largest bank coming out and saying that their institution is a technology company as much as a bank is not really such a big deal. But at the same time, it feels like a public acknowledgement, or at least a public acceptance, that the rules of the financial services have been changing fundamentally for some time.

The fact that the comment didn’t really attract much public attention reflects that in many ways it was something that we’d known and accepted some time ago. As London’s great fictional detective Sherlock Holmes pointed out, there was no barking when the incident happened because the dog knew the people involved and there was nothing extraordinary about it. It is just the evolution of the markets, nothing to get excited about.

The relationship between banks and financial technology specialists has become increasingly intertwined over the last thirty years. It has now reached the point where fintech and the financial services have become virtually synonymous for the majority of the market. It’s accepted, and we’ve already moved on.

The second part of this two-part article will look at the oil and gas sector and explain why the experience is somewhat different. You can read it here.

Kay-Rieck

About the Author

Kay Rieck has been an investor in the US oil and gas sector for more than two decades. He was a financial advisor and stockbroker on the New York Stock Exchange (NYSE) for many years.

He quickly developed his interest in the oil and gas sector and related assets, building his expertise in investment banking and asset management at the New York Board of Trade and the Chicago Board of Trade.

Leveraging his exceptional network of global contacts, he founded his first oil and gas development company in the U.S. in 2008, selecting investments in the Haynesville Shale, Permian Basin, Eagle Ford Shale, Dimmit County, and anywhere else that offered and continues to offer exceptional return prospects.