Is the End Nigh? The Bell is Tolling for Banks
The banking industry is still stuck in the past and is stubbornly refusing to come of age, is it the end of the road for banks?
The Internet age has forced old school businesses to come online, and banks are no exception to this rule.
Today you may be able to check your balance, transfer money or even pay for goods and services on your laptop, your mobile or even your fancy new smart watch but let’s be honest, banks still do not extend their full services through online channels.
As an example, lending, which is a core banking activity, is usually never delivered through the Internet and this means that you invariably have to drag yourself to a bank branch just like you would have done in the 19th century and complete some good old fashioned paperwork to get a loan approved.
Banks are the same but things are changing
Accenture recently published a report titled “2016 Accenture Technology Vision for Banking.” In the report, they carried out a poll on bankers who surprisingly seem to be critically aware that the world around them is not the same.
The report states: “Eighty-five percent of bankers agree that bank industry boundaries are being erased and new paradigms are emerging with every industry being significantly impacted.”
Today we are increasingly using a variety of non-banking companies and technologies to successfully conduct financial transactions, whether it is PayPal, Apple Pay or Google Wallet.
Then there are virtual currencies like Bitcoin, which are an independent and a viable alternative to traditional banking. While it can be said that many of these players are still in a nascent phase, they are already making a visible dent in the edifice of the banking industry.
The death knell is near
Tech companies are already hard at work making life difficult for banks. Lending Club, Circle and Dwolla are just a few of the names. We covered a while ago the possibility of social payments and how social networking combined with payment services could usher in a new era. There are already disruptors like Stripe on the scene which are helping people with payments.
Now if we think about it, if money transfer, lending, payment gateways and basic banking is already being taken care of by tech companies, what future does the banking industry have?
Banks know that they have the very real possibility of dying out and they are even in fear of their employees. The New York Times cites a Citigroup report as saying: “Some 800,000 people will have lost their jobs at financial services companies to some of the newly dreamed up software in a decade. Roughly 60 to 70 percent of retail banking employees are doing manual-processing-driven jobs, if all the current manual processing can be replaced by automation, these jobs can disappear or evolve.”
Developing countries is where the end may begin
According to the World Bank, there has been a great drop in the number of unbanked in the developing world. However, it is not from traditional banking that these people have found financial inclusiveness. As the World Bank says:
“Between 2011 and 2014, the percentage of adults with an account increased from 51 percent to 62 percent, a trend driven by a 13 percentage point rise in account ownership in developing countries and the role of technology. In particular, mobile money accounts in Sub-Saharan Africa are helping to rapidly expand and scale up access to financial services.”
Recently in India, the government has given the go-ahead for so-called payments banks. These new type of banks have got licenses from the Reserve Bank of India and they can accept a restricted deposit to the tune of Rs. 100,000. These banks, while not being able to lend money under their license terms, can provide debit cards and account related services. Indian mobile service provider Airtel has become the first company to offer such banking services. Others that will jump in the payments banks queue include Vodafone, Alibaba supported payments app company Paytm, India’s Department of Posts and Reliance Industries. Indian customers would be able to open accounts with these type of ‘banks’ from non-banking companies simply by using their biometric Aadhaar number. They can simply use their mobile number as their bank account number in some cases. Just imagine the potential disruption to traditional banks!
Ask not whom the bell tolls for
The bell is tolling for the banks and the end is nigh. If the banks will not step into the present tense, others will not wait for them to arrive of age. Mobile companies, tech companies, traditional business conglomerates, startups, among many others are all potential competitors. The end of the banking industry will, of course, have repercussions. Just imagine the impact on the real estate business because, after all, banks are good tenants.
Imagine the impact on their poor employees and of course, if the banks sink, the economic disruption would be painful. It is in everyone’s best interest if banks let go of their pig-headedness and start showing more flexibility towards technology.
The wariness of banks in terms of regulatory restrictions is understandable but not keeping up is surely an existential threat. The inertia in the banking industry is alarming but the ringing bell is surely funerary.