Insights – Future of Banking

Future of Banking

24 March 2025

 

The expert panel discussed the transformation of the banking sector that is already in motion. They expounded on regulations, digitalisation, new asset classes, digital banks, new payment systems and decentralised finance.

• Peter Schaer, Independent Bank Advisor, UAE
  • I concluded a 39-year career in banking with my official retirement in January last year, ahead of my 65th birthday this year. Upon seeing the title “The Future of Banking,” I certainly don’t claim to be its future! My journey included 25 years with UBS in Switzerland, Singapore, and Dubai, holding the role of Head of Wealth Management and Private Banking here for seven years. I also spent five years as Head of Julius Baer here and seven years as Head of LGT here. Today, I’m engaged in advisory work for smaller companies and mentoring.

• Deepak Mehra, Chief Economist, Commercial Bank of Dubai
  • With 28 years of residence in Dubai, I have a banking career spanning over 30 years. I started at Citibank for about 10-11 years, then helped establish Dubai Bank in 2002 (which later merged with Emirates NBD). After a brief period at Credit Suisse, I joined Commercial Bank of Dubai 18 years ago. As the bank’s Chief Economist, I leverage my experience, which includes setting up private banking, wealth management, and asset management divisions.

• Mohamed Abu El Makarem, Strategy Advisor, Global Banking Policy & Complexity Management, Handle BCG
  • I started my career with the United Nations, focusing on international conflicts. This was followed by a role with the European Commission in crisis resilience and risk management, where I gained experience with World Bank and IMF regulations, banking policies, and global banking rules. Currently, I am the Managing Partner and Chairman of Handle Business Consulting Group. We specialize in complexity management regulations and investment structuring, assisting corporates, banks, and investors with getting regulated within the UAE and GCC regulatory system.

• Darnell Edward, LupaPay, Startup Bank, Digital
  • In my 13 years in Dubai, I’ve transitioned from the oil sector to banking. For the past 12-18 months, I’ve been running a startup focused on digital assets and cross-border payments. Our primary goal is bridging the divide between digital assets and traditional finance, making “The Future of Banking” a very fitting title for our work.

Moderator: Oliver von Wolff, Founder & CEO, Helion Capital

The finance world, particularly banking, is currently undergoing a significant transformation. We experience this daily as established mechanisms are no longer effective. Our main focus today is on this pivotal period for banks: where they stand now, where they are headed, and how we are navigating this transition.

Oliver von Wolff: From your experience, what was the banking business like when you started 25 years ago?

Peter Schaer: Reflecting on 1985, when I began my banking career in Switzerland, the technology was rudimentary. Screen access was rare; the slow, monochrome Unisys displays we used were a privilege. By the year 2000, we’d progressed to mobile phones like Blackberries, impressive then but laughably primitive now. Early laptops, too, were ten-kilo bricks lacking power. The transformation in just 20-plus years, from what felt like the Stone Age to today’s sophistication, is staggering. What’s critical is that this technological acceleration is compounding. All of us in this industry must grasp this rapid pace, prepare proactively, or face obsolescence.

Oliver von Wolff: As an entrepreneur, what does the banking world look like with a startup in digital banking?

Darnell Edward: While access to screens is now ubiquitous, the focus in digital banking has shifted significantly. It’s no longer about having multiple digital options, but rather the quality of the user experience – specifically, the user case, overall user-friendliness, and the interface. Though the underlying technology may be more technically complex than in the past, the goal is to make it simpler for the user. This focus is driven by the need to retain clients. Users expect to easily navigate an app, understand its functions, and complete tasks like sending or receiving funds in the most straightforward way possible. Therefore, simplicity is the crucial requirement in banking today, and effective digital solutions are essential for delivering it.

Oliver von Wolff: Mohamed, concerning regulations, it sometimes feels like KYC and AML discussions dominate the banking world. How do you see the current situation? And why do traditional banks face a much heavier burden in this area than digital banks?

Mohamed Abu El Makarem: Banking infrastructure is based on legacy frameworks, using technology that is significantly behind current advancements. With technology driving change across all sectors today, banking professionals are still engaged in fundamental debates about the nature of assets like cryptocurrency and blockchain. Regulators are pushing banks to develop clearer regulations and systems for national and international transactions to meet compliance standards. While traditional banking evolved into a well-regulated system historically, the current pace of technology is outpacing banking’s ability to innovate and adapt. Banks urgently need to integrate modern technology. The regulatory landscape is a broad network across banking systems. In the realm of digital banking, improving customer experience is paramount as banks compete to digitalize and capture market share. Yet, regulations specifically for investors need more development to become customer friendly.

While current AML and KYC measures are sufficient for traditional banking functions like opening accounts and processing transactions, their adequacy for handling cryptocurrency and blockchain transactions is often questioned.

Oliver von Wolff: Deepak, recognizing your expertise in economics and your heart for AI, could you shed some light on how AI is used at your commercial bank? Thinking ahead, what future do you envision for AI in this sector? We’re particularly curious about Dubai – how exactly does AI work, or will it work, there? Considering the significant contrast between existing methods (checks delivered manually) and the ‘new era’ of technology, what’s the economic perspective on AI’s impact specifically for Dubai? Let’s stick to the Dubai situation for this discussion.

Deepak Mehra: Reflecting on the banking journey, we’ve moved dramatically from traditional, paper-heavy operations to a digital standard with widespread online interfaces. The next phase, which we anticipate being significantly shaped by generative AI, is now beginning, mirroring our own bank’s direction. While the transition to digital offered clear benefits like increased efficiency and broader customer reach by streamlining processes, it didn’t fully resolve many customer pain points. The reason lay in the persistence of legacy systems. Digitalization primarily changed the customer interface, critics argue, without truly transforming the complex journeys and backend processes involved in things like credit underwriting or request fulfilment. This focus on the interface, without deeper process change, also had the unintended consequence of turning customers into anonymous numbers.

The era of relying solely on digitization for banking is past; while it brought efficiency, it also led to a more remote and impersonal experience. For institutions, this focus represents an outdated approach. The critical issues lie in the legacy processes, systems, and thinking that create significant pain points. Moving beyond this requires a fundamental reinvention, and generative AI is key to this transformation. Unlike the efficiency-driven algorithms of traditional AI and digitization, generative AI offers capabilities that enable a complete rethinking of how banking operates. We see compelling use cases originating from fintechs, which banks are poised to adopt. While innovative, fintechs lack the extensive reach and trust held by banks, solidifying banks’ central position, often through collaboration and acquisition models already prevalent in the industry. The imperative is clear: reinvent the entire process and offering, thinking creatively of legacy constraints.

Peter Schaer: Yes, I fully agree. And there’s another thing that’s really important, which we sometimes forget in our focus on technology: the different ways generations use banking tech. You see people from many age groups. My parents, thankfully still here, don’t use digital banking at all, but they do fine financially. Then there’s my generation – I understand some digital stuff, but I’m not interested in using all of it. And then my son who is 28 years old, might only use digital banks and not have a regular account. So, we need to understand that we’re in a period of transition, demographically speaking. We have to make sure we’re serving everyone who needs banking access, whether they use tech or not. And for the technology that is used, we really need to make it as easy and simple as we can.

Deepak Mehra: I agree, you articulated the challenge of diverse customer needs very effectively. My perspective is that digitization, rather than solving customer pain points, has merely presented a digital interface. It remains non-anticipatory. Worse, digitization has often alienated customers, making them feel remote from the bank. The common frustration with navigating IVRs or chatbots illustrates this perfectly; these impersonal steps are deeply unpopular with customers of all ages. This is the negative impact of digitization: years spent on it haven’t actually resulted in solving the problems customers face.

Peter Schaer: Drawing from my background in private banking and wealth management, a key insight is that wealthy clients – those with $20-30 million, a level of wealth that is now quite common – fundamentally want to meet and discuss complex situations with people, not machines. While they absolutely expect their advisor (the one handling strategies, tax, and intricate issues, not just product sales) to fully utilize the best technology and resources available to deliver optimal advice, I haven’t encountered any of these clients who would choose to communicate directly with a machine for their primary financial guidance.

Oliver von Wolff: Darnell, are you bridging a gap as a startup, or are you focusing specifically on Generation Z? What’s your core focus and how are you approaching it?

Darnell Edward:  Traditional banking hasn’t truly solved payment issues despite claiming digitalization, primarily because it hasn’t adopted stablecoins. The problem lies in slow, often untraceable payments; money sent Monday might not arrive until the following week. Digital assets offer immediate transactions, and future bank-issued stablecoins could rectify this, though they aren’t yet fully deployed. Sending a large amount, say $30 million, via a crypto wallet is instant and requires no human interaction, fulfilling the user’s core need for fast, accurate transactions – a need traditional banks often struggle to meet with their current processes.

Oliver von Wolff: Picking up on our point about the licenses essential for your startup bank – which is indeed a global requirement. Given that operating across the world involves securing licenses in every country you target, you could tell us: from a licensing and regulatory standpoint, how difficult is it to build a digital bank?

Darnell Edward: The era of easily obtainable digital licenses, like those available in Lithuania or Latvia for €30,000 two decades past, has ended. Increased scrutiny from banks over money laundering, coupled with rampant scams and losses in the crypto market, triggered a crackdown. What was once an open landscape now faces regulatory hurdles. The difficulty lies in regulating a digital realm when traditional financial institutions, responsible for oversight, themselves struggle with internal compliance and often lack the necessary expertise. This challenge means no European nation has finalized an ideal regulatory approach for cryptocurrency. Furthermore, the rollout of new regulations, including those affecting banking access for certain crypto entities, has introduced significant disruption and complexity, extending application timelines drastically—sometimes requiring 18 months to two years.

Oliver von Wolff: What recommendations would you give a young startup regarding regulatory matters, considering both a global perspective and the specific context of the UAE?

Mohamed Abu El Makarem: The UAE and Singapore are pro-crypto countries, ahead of regulation compared to restrictive nations like China or India. The UAE launched Vara during a transition to facilitate the sector, but the regulatory framework is still evolving despite the early announcement. The first license (Binance) took over 18 months; future ones will be faster but still over a year. The real complexity isn’t just the friendly regulations but ensuring security and integrity across the supporting ecosystem. This involves entities like DIFC and ADGM coordinating to regulate key pain points you mentioned, which requires patience.

The issues with traditional banking system and the pain points discussed are valid. We are in a complex, transitional phase with varying generational demands. Addressing these requires collaboration, proactive regulation, and leveraging technologies such as generative AI and RegTech. Critically, RegTech is currently absent in banking. Regulatory responsibility rests with jurisdictional bodies, not banks, leading to conflict. Innovators are far outpacing bankers trying to catch up. Bankers must shift from merely following rules to actively tackling regulatory ambiguities. They need to balance traditional banking, essential for older generations, with enhanced digital services for younger ones. The future of banking, including better customer experience and real-time monitoring, relies on RegTech implementation. However, while regulation is key, its development is slow, typically taking 3-7 years.

Action from the central bank, while favourable, requires considerable time, usually a minimum of three years. This extended timeline is due to the rapid speed of innovation and technology outpacing the pace of regulatory development.

Oliver von Wolff: The regulation of the crypto and blockchain sector was often transferred between ministries. It wasn’t until the ecosystem grew those high-level authorities finally determined that regulation was necessary.

Mohamed Abu El Makarem: The handling of virtual assets, particularly at Vara and ADM, is currently complicated because their fundamental nature – whether considered a commodity, currency, or something else – remains undefined. This lack of clarity impacts requirements like digital identification. It would have been more logical for Vara to have started by clearly defining virtual assets in its initial regulations, in the first chapter, before addressing subsequent points like digital ID.

Deepak Mehra: Representing a bank, my view starts with the depositor. The most basic expectation when putting money in a bank is safety. This core need dictates the primary purpose of bank regulation: to protect depositors and prevent bank failures. Regulations exist so you can trust your money will be there. However, despite this essential goal, some regulations have become extreme. Focusing first on lending (and leaving payments/crypto for later), regulators significantly tightened capital adequacy and credit standards. While intended to mitigate risk, this approach inadvertently created a bigger problem by driving growth in the shadow banking sector. Today, much direct lending is conducted by private credit funds, private equity firms, pension funds, and other non-bank entities.

The private credit market is expanding rapidly, with annual growth rates around 20%. A prime example is Apollo Global Management, which has become one of the largest funds, accumulating $600 billion in assets from a negligible amount within just 3 or 4 years. To illustrate its scale, $600 billion would position it as the ninth largest bank in the US. Yet, unlike banks, private credit funds operate outside typical banking regulation. Ironically, regulation aimed at traditional banks’ lending seems to have encouraged the rise of these unregulated “shadow banks.” While structures like “covenant light” loans are common in private credit, the risk is confined to investors, which protects depositors. However, the sheer scale—shadow banks now holding 50% of US lending assets—introduces a significant, unregulated systemic risk.

Turning briefly to payments and the crypto space: Blockchain technology has existed for approximately 15 years. While acknowledging its potential, I personally haven’t observed a widespread, day-to-day use case for it during this time. Given 15 years, if there were a practical, common application, it seems reasonable to assume it would have emerged by now. The question remains whether this slow adoption is due to regulators or limitations within the technology itself.

The technology’s soundness needs scrutiny. Regarding crypto assets, even after ten years, I have no personal transaction history, and they haven’t affected my banking. My core issue is classifying crypto as a currency. Calling it an asset, like watches or art, is acceptable. Volatility in such assets, including crypto, doesn’t warrant government regulation – a Rolex losing value isn’t a government concern, and neither should crypto asset volatility be. However, regulatory needs change when crypto enters the banking sector, where protecting depositors is vital. Regulators are firm to prevent a repeat of the devastating 2008 financial crisis. This distinction defines my views on blockchain, cryptos, and their regulation.

Mohamed Abu El Makarem: Paraphrasing your point, the platform relies on transparency and trust – qualities not fully present in today’s banking system. This discrepancy implies the existence of an interim, less regulated space (a ‘shadow framework’) until regulations are complete.

Deepak Mehra: A primary purpose of fiat currency, from an economic standpoint, is enabling central banks to transmit monetary policy – a function essential for running the economy. Consider economic management: during a slowdown, policy requires loosening (increasing money supply, cutting rates). Without fiat, how would this crucial transmission occur? The ambition of some in the crypto world seems to be replacing fiat, which inherently removes the ability to conduct monetary policy. Addressing issues with fiat (like payments or regulations) should be the focus, through solutions like Central Bank Digital Currencies (CBDCs). Substituting crypto for fiat, however, would not solve these problems; it would create a much larger one by eliminating control over monetary policy, leading to economic instability. This fundamental need for economic control is why central banks exist.

Darnell Edward: Given the top-down nature of control, our focus cannot be on driving change or speed from below. Instead, our strategy is to clearly show that the system is clean, effective, and easy for people. The catalyst for change will be increased adoption: as more individuals get involved, regulators will see the need to adapt their policies. As has been discussed, control rests with the government and the central bank, implementing it through regulation.

Mohamed Abu El Makarem: Banking regulation is a matter of policymaking, not politics. Regulators are responsible for developing these policies, which aim to link the frameworks of individual banks together under central bank oversight and global agreements. For instance, the Basel framework regulates international transactions between global banks and is a key reference for conventional banking rules, although primarily based in the EU. Governments address risks, stakeholders, the economy, and depositor rights but do not issue specific mandates; regulatory compliance is not a simple checklist. The main challenge in this policy-making process is that regulators struggle to follow an organized pathway to address the ongoing, fast-paced changes driven by innovative technologies.

Oliver von Wolff: From your economic perspective, how will these affect banking? We see a notable contrast between, for example, the US, which is actively developing crypto and DeFi regulations and considering roles for Bitcoin beyond just an asset (like potentially a reserve currency), and Europe, often characterized by stringent regulation and aggressive monetary policy, sometimes seen as inhibiting innovation. What is your assessment of this global divergence?

Deepak Mehra: Building on your point, we now turn to larger geopolitical and economic challenges. The rise of protectionism, driven by figures like Trump in the US and right-leaning parties in Europe, is expected to reduce cross-border collaboration. This trend unfortunately makes self-regulation more difficult as nations increasingly prioritize domestic interests and restrict interactions. Europe faces significant economic hurdles, primarily high levels of sovereign debt in most countries, with debt-to-GDP ratios often exceeding 100% compared to the EU norm of 60%. Germany, while previously an exception, is also seeing its debt rise above this threshold. These high debt levels severely limit countries’ fiscal capacity to manage financial instability. Consequently, banking regulations are likely to become more stringent, as there is little room for error and limited tools available to manage crises, a situation also evident in the US with the Federal Reserve’s large balance sheet and reduced quantitative tightening pace. The overall regulatory environment is therefore set to tighten. For the crypto market, there is specific, albeit limited, positive news regarding Trump’s favourable stance, including a decision not to sell government-held crypto (a small amount) and potential discussion around converting gold reserves to Bitcoin (though requiring Congressional approval and not injecting new funds). However, this openness does not extend to integrating crypto into mainstream banking, where US regulators are expected to be stricter. In Europe, there is minimal prospect for mainstream crypto adoption; the ECB is openly resistant, and countries lack the economic flexibility and focus on growth needed to even consider regulatory sandboxes, defining innovation narrowly instead. Overall, the outlook for openness in societies, banking systems, and regulation, including the crypto world, appears to be one of increasing stringency.

Peter Schaer: You made an important point about the cycle of crises leading to more regulation, which is absolutely true. And your subsequent idea, that if the next major event occurs, regulation might simply not be enough, directly raises a critical question for us as investors and clients: how should we manage and position our assets? This suddenly brings to mind the need to consider options like crypto, real estate, and others. Shifting focus to Switzerland, while we are geographically within Europe and distinctively an “island” outside the EU (an organization I frankly think doesn’t and never will work, much like the Euro), we are interconnected. My personal view as a Swiss is that these institutions are failing. However, despite this position and our more global economic reach (which might lessen the impact), Switzerland will not be spared. If Europe is struggling, we will inevitably struggle too.

Oliver von Wolff: Are there any advantages for startups in banking to make profits during these volatile and uncertain times?

Darnell Edward: Operating in this space is becoming significantly harder due to increased regulation. Regulators like the UK’s FCA are exerting considerable control over crypto assets and companies, while Europe’s MiCA framework has also been implemented, creating substantial disruption. This pressure is causing startups to suffer, with many companies halting operations as they cannot meet the new requirements. However, this increased scrutiny is also a positive development, as it’s cleaning up the market by removing problematic or non-compliant projects. Consequently, regulated companies operating correctly, particularly startups in the digital sector, are better positioned for long-term benefit. Unlike the past where rapid, short-term gains were possible in a less regulated environment, success now favours those committed to doing things right for the long haul, as increased regulation builds trust and is key to benefiting in this new era.

Oliver von Wolff: Do people still trust their national currencies and the traditional financial system, or is that trust shifting? From a global and regulatory perspective, how can the UAE best position itself in light of this dynamic?

Mohamed Abu El Makarem: The world is currently in a disruptive phase. While discussions of a creeping international crisis have been ongoing, recent political shifts in various countries have notably redirected substantial capital towards the UAE, particularly Dubai. This influx is highly visible; traffic congestion in Dubai, for instance, has become significantly worse over the past year, indicating a considerable change from twelve months ago and making predictable scheduling difficult. This surge in traffic is attributed to an unexpected post-Expo increase in residents driven by global changes, with potentially millions relocating to the UAE. Specific examples include a large number from Germany, estimated at 280,000. This migration involves global capital, primarily traditional forms (paper, coin, tangible assets), brought by Europeans, Russians, Ukrainians, Americans, and others drawn by the UAE’s stable ecosystem, strong economy, security, political stability, and unbiased stance. Despite the prevalence of traditional money, there remains significant space for innovators, who are navigating or sometimes bypassing regulatory complexities (“shadow frameworks”). From a personal perspective, as an Egyptian who previously worked in Brussels and Italy, I chose Dubai 15 years ago specifically because I anticipated it would be a safe and secure place for my family for the subsequent decade. For economists, investors, and those leading future economic innovation in tech and other fields, Dubai is a strategic location for the next ten years.

Audience Ques: Since transitioning from a fixed price by the end of 2009, oil sector fuel prices are now updated monthly. This shift occurred as the dollar began devaluing. Gold prices reflect this, rising from $2,000 per ounce last year to $3,000 currently, with possible future increases to $5,000. This devaluation impacts banks by reducing the real value of outstanding debts they must collect. The combination of rising gold prices and dollar weakness could lead to banks experiencing credit shortages. It appears a system similar to the flexible oil pricing model, potentially one discussed in contexts like OPEC, might be needed to address these financial challenges.

Deepak Mehra: Viewing gold as the basis for currencies is an interesting perspective, but it doesn’t reflect how modern fiat currencies operate. The US dollar, for instance, has been unpegged from gold since 1974 and functions independently, unrelated to gold prices. Globally, the total value of mined gold, estimated at $20 trillion, is insufficient to support the world economy, necessitating fiat currencies untied from gold. In relation to banks and oil prices, oil is denominated in US dollars. The dollar has been stable, trading within a 10% range (100-110 on the index) since 2009. Our local currency is pegged to the US dollar primarily because 55% of government fiscal revenue still comes from oil. Consequently, income, spending, the currency, and the UAE’s $2 trillion in external reserves (including central bank holdings) are all in dollars. This strong dollar backing ensures the government can easily convert dirham holdings into dollars, providing stability. This is a core benefit of the fiat system, which is designed to protect savers, not just the wealthy. Therefore, gold price movements, representing a separate asset, have no impact on this system.

Audience Ques: With family history in Dubai spanning 50+ years and having lived here myself for over 40, I’ve seen the UAE maintain stability through a blend of tradition and innovation. While B2C areas, particularly Bitcoin and crypto adoption, are now highly digitalized with much of the customer experience solved, my fintech firm, X square, targets the B2B payments space. We chose B2B because it’s a $150 trillion ecosystem, twenty times larger than B2C’s $8 trillion, and unlike B2C, it’s yet to be significantly digitized. My question to the crypto experts is this: could we realistically see major players like Emirates Airlines or Dubai Ports paying for fuel in Bitcoin within the next 5 to 10 years?

Darnell Edward: This is occurring. Oil payments are already being made through stablecoins. Much oil from sanctioned countries like Brazil, Nigeria, and Venezuela is paid for this way because traditional payments are blocked, but stablecoins are not similarly sanctioned. This serves as the payment method. Intermediaries like Trafigura, using subsidiaries, facilitate these deals. You wouldn’t deal with the main entity, but rather pay a subsidiary via stablecoin, often routed through India or the UAE. This process has been active since the war.

Audience Ques: Regarding the security future of crypto in the face of quantum computing: I’ve heard from fintech contacts that quantum computers could rapidly decrypt current blockchain technology. Considering this potential threat, what is your assessment of the risk posed by quantum computing? How often do you consult security experts on this topic, and what feedback do they provide?

Deepak Mehra:  The significant investment needed for technology poses a major problem for smaller banks, making scale a crucial advantage. Consequently, larger banks are expected to expand continuously, driving increased merger and acquisition activity within the banking industry. The inability of average-sized banks to sustain technological costs suggests that fewer, larger banks will eventually dominate the landscape. Implicitly, regulators favour this trend towards consolidation, viewing smaller banks as less capable of effectively managing risk or navigating crises, thereby encouraging them to merge.

Audience Ques: Setting aside risks related to cryptocurrency, what do you consider the primary risks for banking and finance?

Deepak Mehra: The biggest risk in banking is regulatory pressure on lending, the core business that drives bank profitability. Regulatory actions have pushed banks to scale back traditional lending, fostering the growth of shadow banking and adding systemic risk. Furthermore, soaring regulatory costs and compliance burdens disproportionately strain smaller and medium-sized banks. These combined pressures make it challenging for average-sized banks to effectively manage risks, forcing them towards mergers and consolidation for sustainability. Technological advancements will only exacerbate these challenges while introducing new risks.

Mohamed Abu El Makarem: Ensuring banking system resilience to unknown risks presents a significant challenge. Regulators are attempting to identify these risks, but they typically trail behind the innovators who create them.

Oliver von Wolff:  I have a different perspective shaped by my banking background in Germany. Initially, I worked at a small, highly profitable union bank in a city of 2500 people. The introduction of Basel I or II regulations, mandating a minimum equity of twenty million (compared to our 1.5 million), forced a merger with three other banks. This resulted in increased administration, regulation, and a proliferation of CEOs, yet it wasn’t sufficient. A subsequent merger, due to Basel III, made the bank large. During the first German equity crisis in the early 2000s, I observed that unprofitable banks, which I believe as a capitalist should have gone bankrupt, were instead propped up with systemic funding. This practice of preventing failure creates a flawed system, paralleled in sectors like European agriculture, where complex regulations hinder small farmers from obtaining financing. This experience reinforces my belief in blockchain and crypto: responsibility and risk should belong to the individual entrepreneur, not the government or others who shouldn’t bear that cost. The current system, where stress tests show large banks haven’t necessarily improved but are simply too large to fail, represents a significant failure. The system needs more innovative, smaller banks, supported by investment in innovation from entities like the European Union.

Audience Ques: One might expect established banks, with their large foundations and both traditional and digital presence, to have higher survival rates than newer banks. While newer banks may have potential, as Oliver mentioned, I believe older banks with both physical branches and digital platforms are more likely to endure for generations. Newer banks face significantly higher rates of bankruptcy and failure.

Darnell Edward:  The outcome for banks is uncertain, depending entirely on their adaptation and transition strategy. Traditional banks’ survival relies on their ability to adapt to the new era, specifically by supporting startups and younger consumers and simplifying processes. Conversely, new banks are already aligned with the needs of demographics like Gen Z and affluent customers. Their success is a toss-up based on the path they take.

Audience Ques: My question is about the regulation of self-custody. We’ve discussed how general self-regulation often fails. However, there’s an argument that individuals controlling their own funds through self-custody will take responsibility, for example by following KYC rules, because it’s their money and their direct concern. What is your opinion on self-custodial crypto wallets? How do you see them, combined with stablecoins, addressing the gap about which we’ve been talking?

Mohamed Abu El Makarem: Innovators are currently filling a critical gap in the absence of adequate regulation, effectively addressing major pain points in today’s international transactions. They bridge the divide between fast-paced innovation and a traditional banking industry not currently responsible for these advancements. Banks, primarily focused on lending and profit, operate alongside financial regulators who are policymakers influenced by bankers, not the government, pushing for system connectivity. The heightened regulatory strictness, previously mentioned, traces back to the post-financial crisis period (e.g., in the UAE), where banks were criticized for facilitating excessive credit via easy lending. Sixteen years later, the full consequences are still being resolved, with recent bank instability linked to unresolved large loans. While innovation carries perceived risks, the most significant risk is incomplete regulatory frameworks, which take time to establish. To counter this, we must integrate regulatory technology (regtech) and add innovative teams, not just legal ones, into banking policies and regulation.

Audience Ques: How do you assess the risks of the fiat system when considering the quality of the politicians responsible for regulation? A significant issue, particularly in Europe and the US, appears to be a dramatic decline in political leadership quality over the past two decades. In my view, this hasn’t led to better or more secure banks. Silicon Valley Bank’s collapse two years ago, and its subsequent rescue by the state – effectively the public – illustrates this. It suggests a system where inadequate political oversight contributes to vulnerable financial institutions that need public bailouts. I honestly question the ‘beauty’ of such a system. Contrasting this, someone mentioned earlier that self-regulation is driven by the market – supply and demand. This mirrors a libertarian approach seen, for example, in Argentina, where some argues significant deregulation to have contributed to notable economic growth by returning control to the market. So, my core question is: How do you view the potential impacts and risks of significant deregulation in relation to fiat and currency systems?

Deepak Mehra: One aspect, the prevalence of ineffective politicians and policies, is attributed directly to the electorate who chooses them. While voters hold the power to change this, widespread public confusion, evidenced by election results lacking clear mandates in regions like the EU, leads to the election of politicians without strong directives, thereby contributing to policy issues. This confusion resulting in ambiguous mandates is a widespread trend.

The second key point defends the fiat system as necessary for managing a country effectively. This requires independent monetary policy and government fiscal policy, which are viewed as fundamental. The fiat system is presented as the only way to conduct monetary policy, which is essential for supporting fiscal policy (like government borrowing). These are seen as core economic principles that cannot be abandoned. The absence of a strong, centralized system like fiat would result in economic instability and anarchy. Historical precedent, such as the chaos caused by multiple bank-issued currencies in early US history, demonstrates the necessity of a central bank and a unified system to prevent recurring financial crises. Therefore, the fiat system, underpinning these foundational policies, is considered indispensable and likely to endure.

Audience Ques Generation Z (16-18) is achieving financial success through innovation but fundamentally distrusts traditional banks. They see bankers as outdated and processes too slow, preferring the speed, direct ownership, and transaction capabilities offered by cryptocurrencies. This shift challenges core financial foundations and is clearly visible, for example, among young people in Europe. Given this trend and the current global instability, how do you see the next ten years unfolding for major banks? How can they survive when their vital future client base is moving towards crypto and alternatives, indicating a potential decline in reliance on traditional banking models?

Mohamed Abu El Makarem: My daughter, 15 years old and part of Gen Z, highlights a generational shift. Whereas my father would have seen me as disobedient for not following him at that age, today, regulators and policymakers’ risk being the disobedient ones if they ignore Gen Z’s needs. This generation is dominant; they are the compass for the future direction. The tech innovators around us are key players, having created the very environment and needs for Gen Z. They possess insight into the future economy and are actively shaping it. It’s crucial to distinguish between banking and fintech regulation, as they are completely different. Collaborative efforts between banking and fintech regulators over the next ten years, focused on meeting Gen Z’s demands, would represent a major achievement.