Big Idea for 2014: Banking Goes Virtual
“Banking is essential. Banks are not.” — Bill Gates
In my quaint little New Jersey town, the eponymous Maplewood Bank & Trust once literally provided the pillars of the local community. Near the center of the main commercial thoroughfare, the building’s Corinthian columns rise toward a facade where the institution’s name is carved in stone.
That’s all that is left of the bank, however. As the financial landscape shifted, it long ago went the way of thousands of other defunct small banks.
Change is nothing new to banking, but it is likely to come faster and with more fury than ever in the coming months and years. That’s because money, like the written word, is ideally suited to existing and traveling in electronic form. Now, the digitization of dollars is giving birth to a giant wave of innovation. Here’s one impressive piece of evidence: mobile banking transactions grew 50% in the past year alone.
“Banking in the future will be something you do – not some place you go,” American Banker columnist Jon Matonis wrote recently.
For many, it already is. Never before have customers had so many choices of where to lend, borrow, store and transmit money. These days you can even hold your wealth in a form of tender that’s untethered to a government or physical form.
Bitcoin, the digital currency, is making inroads and creating big-time buzz. Its rise leaves bankers in a quandary. They can help foster a fast-growing market that’s making their regulatory overseers queasy or stick to the sidelines as Silicon Valley startups, retailers and others blow past them.
The story’s the same in many other quarters. Outfits like Lending Club are cutting banks out of the credit market (a sliver of it, anyway) by providing lenders and borrowers with a virtual marketplace in which to meet.
In the payments world, startups like PayPal, Square and Stripe have grabbed the initiative, enabling customers to zap money from point A to point B without ever thinking of a bank.
When it comes to storing money, Google and other nontraditional payments players are pressing ahead with digital wallets, which are already in use by 11% of online consumers. Elsewhere, disruptors like Green Dot and Bluebird, the American Express-WalMart joint venture, offer prepaid cards that act as checking accounts without the traditional baggage of paper checks, statements and tellers.
All this tumult will cost full-service banks in the neighborhood of 35% of their market over the next seven years, figures the consulting firm Accenture. Translation: if Accenture’s crystal ball is clear, banks will lose more than one-third of their business in less than a decade.
“Digitally oriented disruptors that are far more agile and innovative” and are the likely winners, Accenture says.
For incumbent banks, there are rays of sunshine. As the cornerstone of the nation’s payments network, they still have a built-in edge. For institutions that grab the initiative, it could lead to new business, like using their secure networks to become the keepers of digital credentials and other data–a role that’s already emerging in Canada.
Change also offers a chance to rethink their giant branch investments, from a place where paper passes back and forth to one where live people add value in ways that that digital zeros and ones can’t.
Banks won’t go away. Neither will bricks and mortar. But ten years from now, today’s brick-and-mortar banks, and digital banking services, will look like quaint vestiges of a bygone era.
Neil Weinberg is the editor-in-chief of American Banker. The views expressed are his own