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What is a bank?

So I had a meeting the other day where we started arguing about banks and what banks really are these days.

The traditional view is that banks are those that offer deposit accounts and have a bank licence.  They are recognised by regulators as banks, and governments oversee their activities.

That view is no longer valid however, as we have a lot of other things that are like banks around.

I define them as Near Banks, Like Banks and New Banks, although I’m sure you could have your own definitions and views.

Near Banks are institutions that have been around for a long time working with the banks, and are now offering semi-direct services to consumers and corporates as part of their offers.  This is the Visa, MasterCard, VocaLink and BKM’s http://thefinanser.co.uk/fsclub/2014/08/bkm-turkey.html of this world.  These institutions have worked as bank service providers for decades, and often were owned by the banks but, in this increasingly competitive world, are now commercial entities spun out of the system.  In most cases, they still work with the banks but, give it a few years, and these providers may well be in a competitive position with their founders due to the demands of the markets. 

Like Banks are exactly that: they are just like banks except they are not banks.  In this category, I would place Moven, Simple, Holvi, Google, Facebook, Apple and more.  For all intensive purposes, they offer the capabilities to do everything you can do with a traditional bank, except that they do not hold a bank licence themselves.  Most of these providers offer these bank-like services by front-ending a bank as a wrap-around although, in the case of Holvi, they take it a step further by gaining a payments licence.  That proves interesting in that, like PayPal, if you have a payments licence or emoney licence, you can pretty much operate as though you are a bank, even though you are not.

Finally, we come to my favourite category: New Banks.  It is my favourite as this category really is the mover and shaker, rather than the Great Pretender.  Y’see, the Like Banks aren’t banks but pretend to be one whilst the New Banks aren’t banks and don’t try to be one.  They are New Banks, completely different to anything that’s gone before.  A great example is Zopa, a lending service that has created a new model of enabling investing and borrowing.  Others include Kickstarter, Indiegogo, Funding Circle, the House Crowd.  These are all pooling crowd funding into new forms of finance or, if you prefer, new banking services.

The challenge within all of this is therefore to work out what is a bank?  Is it a bank with a licence, a processor with a licence, a brand with a bank partner or a platform enabling new transactions and money flows?

I’ll let you decide, even though I haven’t even mentioned bitcoin or cryptocurrencies yet …



About Chris M Skinner

Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, the Finanser.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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  • Maciej

    Facebook might move towards PayPal model, as FB recently received an emony license in Ireland. This just proves your point, with one twist: challangers will go and get (buy/acquire) the banking license, and traditional banks can do nothing about it. Challangers will just play the game with the same papers, but with better service, user experience and possibly larger user base…

  • Maybe “Not Banks” is another definition.
    Not sure why any one of those groups that are not actually banks would want to be described by any sense of proximity to being a bank.
    Building Societies are a bit like banks, but they often position themselves as being very distinct from being a bank.
    And for most consumers, if you asked them what they think their bank does, that would be a far cry from what they think Google, Facebook, PayPal do for them (in their own words). To describe them as being a bit like banks would change their expectations of what services they would deliver for them.

  • Bruno

    Google already has a large number of banking licences, Facebook just hired Paypal’s founder and Amazon has announced the creation of their own Paypal.
    How long would it take these large cloud service suppliers to offer financial services anywhere in the world, in connection with the activity most of us, internet users, already have with them?
    Then, who will care what a bank is, or was?

  • How about Anti-Bank.
    Before being bought by BBVA “Bank Simple” changed it’s name to “Simple” when it saw the light.