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So is there a chance of getting rid of banks?

So to the really interesting question: if the industry is a polluting, festering, rotten and foul mess, should we try to shut it down?

The reason I ask this is that this is the question that came up as I was writing yesterday's blog, debating the similarities between the banking and oil industries.

If BP and their brethren had a Deepwater Horizon every few years, we would seek to substitute oil for another fuel … and we are.

If JPMorgan and their brethren had a financial crisis every few years, we would seek to substitute banks for another service, and some of us are.

I think this is really to the point that Venessa and her friends are asking: can we evolve a system that substitutes banking with something far more robust, resilient, safe and secure and trusted, created by the people for the people.

Sounds revolutionary, but maybe the time is nigh.

After all, I was at a debate this morning that posed the question whether we still trust banks, and what banks should do to create more trust.

I’ll blog about that specific debate separately, but comments were made about the 18-25 year old generation and how their trust in the financial system, in fact their trust in the institutions of the 20th century, has been smashed.

Graduates who are desperate for jobs in these hard times are just not applying to banks.

Banks are hiring but no-one’s applying.

The world now views our revered institutions as being broken, and the question was asked: can they be fixed?

Let’s say no.

Let’s say that the new generation decides that banking is rotten to the core and they want to do it a different way.

That’s what Venessa’s blog really challenged to say, and it’s what the Future of Money video is all about too.

So let’s look at what would be involved in getting banking shut down and replaced by something else, and maybe the best way to illustrate this is to start with our metaphor industry: oil.

If you wanted all vehicles replaced by another fuel, let’s say electricity or hydrogen or biofuels, what would it take?

Hmmm … first there has to be a fuel that allows you to have as good a vehicle experience as we have today.

The cars need to run as fast and efficiently re kilometres to the litre, or miles to the gallon if you prefer.

The power needs to be the same or better too, so that you can rip-roar past those pesky pensioners in the slow lane.

And refuelling should be about the same, as a full tank lasts about 350+ miles for the average vehicle today.

Oh, and it might be useful if the new fuel was cheaper too, with easy switching to these fuels and plenty of gas / petrol stations to distribute it.

As you can see, it’s quite a big ask and, just to cap it all off, the vertically integrated oil industry means that the guys who are producing it are also distributing it and so it’s not in their interest to switch to alternatives until they deem it necessary.

Hmmm … LOCK-IN!

And then youth see Deepwater Horizon and say: “this is not right”, so the new generation of great minds begin to crowdsource ideas of alternative fuels and transport.

Could they build something different and break the deadlock of the incumbents?

Howsabout this then: Venessa and Gabriel have started a flame that may lead to a fire that burns down the house of banking cards?


Not sure if this is what Venessa and Gabriel (Shalom, producer of the video) want, but here’s an example of how this works in transport.

I started looking at crowdsourcing ideas in transport and found some wonderful blog entries and articles.

One is on the future of shipping, where many experts gathered online and started discussing how to make new fuel efficient ships for the 21st century. As Ryan Skinner (no relation) states: “The distance from a group of knowledgeable industry pros answering a speculative ‘What technologies are hot?’ to a real specification for a future ship could be pretty short.”

Or just read this fantastic extract from Call4.com:

The coalition’s recent initiative – to essentially crowd-source ideas for spending cuts in its budget via Facebook – had the potential to be ground-breaking.

Despite the headline-grabbing launch to Facebook – which, by the way, reached 500 million users last week – the channel was removed when a competition site was launched which made a mockery of the official one. This in itself is testament to the ability of social media to level small and large organisations – with Liberal Conspiracy and a goat mascot (ie. ‘Can this goat get more followers than HM Treasury Spending Challenge?’) causing the government to feel they wanted to take down the page.

Greenpeace’s online campaign against palm oil was far more successful than their face-to-face efforts – with social media taking the sharing of their ‘Kit Kat: Give the Orang-utan a Break’ video to viral proportions. This campaign culminated in Nestlé ditching their supplier of palm oil Sinar Mars.

There are lots of other examples in this blog of the crowd in action, and the entry above finishes with the story of how Greenpeace took on HSBC’s funding of Sinar Mars after winning against Nestlé:

“After receiving nearly 10,000 emails (and seeing some excellent spoof adverts), HSBC has sold its shares in Sinar Mas, one of the worst companies responsible for ripping up the Indonesian rainforest for palm oil and pulp plantations. It's fantastic news that has shone a light on the financial side of deforestation.”

The crowd in action can be strong, and my own smoking gun in all the blogging this week was the link to the quotes and comments from Stephen Hester about banking being the oil of trade.

Why was this a smoking gun?

Look at the blog title for that entry: “Social media will bring banking to its knees”, a direct quote from Hans van der Noordaa, CEO Banking Benelux, ING.

Here’s what he actually said:

“The banking industry has not been seen as an example of customer centricity in the past … with social media, we underestimate what the public can do. They have all the tools there to bring you to your knees if they want to. This means banks must be clearer in their strategies in choosing the customers they want to serve and the customer they don’t.”

Too right Hans, and so to the real heart of our conversation.

What would happen if we crowdsourced new ways of funding, exchanging value, generating wealth and supporting communities and groups of interest?

This is what Venessa is asking for and what potentially could be given.

At present, it is all periphery but tomorrow it could be heartland.

Today’s Zopa is tomorrow’s Citi; today’s Social Finance is tomorrow’s NYSE Euronext; today’s PayPal is tomorrow’s SWIFT; today’s Facebook Credits is tomorrow’s Visa … and so on and so forth.

Caveat: going back to my oil illustration, the banks own most of the pipes and plumbing for the creation, management, organisation, sharing and distribution of money today.

How could money be replaced by something else if the controllers wouldn't allow it?

Like oil, how could we move from money to credits or something else, whilst the 'powers that be' will not allow it?

Could we really start with crowdsourcing a new bank?

Some have tried and succeeded in doing this.

In September 2009, the BBC aired a fascinating debate about the topic, with contributions from: Andrew Hilton, Director, Centre of the Study of Financial Innovation; Muhammad Yunus, Founder, Grameen Bank; Brandon Davies, Chief Executive Office, dRisk.biz Limited; Lindsay Mackie, Consultant, New Economics Foundation; Antony Elliott, Fair Banking Charity; Ian Hatton, Senior Regeneration Manager, Essex County Council; and Giles Andrews, Managing Director, Zopa. 

My issue is that:

  • that was a year ago;
  • many of these discussions have taken place over the years; and
  • where is that new mainstream institution that displaces or replaces the banks?

Maybe it's Sprowd?

Pascal Spelier highlighted this with me yesterday.

Sprowd is “a revolutionary platform that takes the concept of crowdfunding to a new level”, and wants to go “beyond grass roots and hobbyism” to “crowdfund substantial business projects.”

Pascal has reviewed the new service, after interviewing founder Niels Feenstra who states that:

“We start with Sprowd with a focus upon finance, but it would be nice if Sprowd could develop into a medium for social entrepreneurs. An entrepreneur who wants a product on the market can use our service to connect with crowd funding with believers, not just financiers. A believer can help the entrepreneur to really get their ideas, product and services to market launch.”

Wonderful stuff and I wish Niels and Sprowd well.

But yet again, we have many models of investing and exchanging today, from business angels to venture capitalists, from private equity to capital markets.

None of this replaces the heart and soul of banking: the deposit account, the checking account, the money transmission; which is where I keep bringing the discussion back to, as this is the controlling factor.

And so I come back to the real expectation here, which is that if the financial system and money starts to move to some new form of dynamic, such as information exchange and the safekeeping of data.

Information exchange incorporates peer-to-peer connections, social media and network exchanges, trust scores and crowdfunding, as well as gifting and credits.

Let’s say all that stuff starts to take off and the Sprowd’s and Zopa’s, Facebook Credit’s and Flattr’s begin to see scale, volume and critical mass.

Do you really think it will just happen around the banking industry, without the industry responding?

Do you really think that the financial firms will allow their own circumvention and disruption without smothering the newbie before it takes over?

Sure, they did this with PayPal, but PayPal was not replacing but supplanting.

Even with PayPal, they’ve been held at bay in certain countries, such as the Netherlands, where the banks have created a more trusted alternative.

Therefore, it is far more likely that if crowdfunding and social currencies really start to show traction, that the traditional monetary institutions will move with it.

And they won’t even need to move that fast as, like driving oil-fuelled vehicles, the speed of change of the masses will be so slow to transition.  This will be because anything new is monitored and will be carefully controlled over time by governments and institutions.  Therefore, if there is a movement, then it will eventually be managed by the very same organisations that the movement is trying to replace.

Like oil refining and distribution, the tight coupling of value exchange between governments, regulators and institutions is so tight, that anyone trying to break these bonds will be frustrated.

By the time any real change does start to occur, the system will have copied and managed it to ensure it continues to be controlled and organised by them.

Depressing and cynical?

Not really. Just the way of our world.

If it wasn’t, then banking would have disappeared centuries ago.

Vive la revolution!


This article links to four others this week, in a series challenging the future of banking.  The series of articles are as follows:

  1. Why banks and socials agree to disagree
  2. Where banks and socials can agree
  3. If banks are like oil, build better vehicles
  4. So is there a chance of getting rid of banks?
  5. Can banks be trusted?



About Chris M Skinner

Chris Skinner is best known as an independent commentator on the financial markets through his blog, TheFinanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here...

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