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Watch your back door first, rather than the horizons

For a long time, we have considered that there will be massive change in banking; that new entrants like Google, Amazon and Facebook will eat the banker’s lunch; and that banks are weak and easy to attack.

This is completely wrong thinking however.

Banks are not weak and easy to attack. They are, instead, protected and have high barriers to competitive threats. These barriers are called bank licences and are the core threshold that stops most new competition entering the banking marketplace. The bank licence not only demands high levels of capital and compliance, but rigorous audit and regulatory practices that are too complex and difficult for most non-banks to deal with.

This is why, back in the 1990s, everyone predicted Microsoft, Virgin and Wal*Mart would decimate the banking markets, but they never did and still struggle with how to gain any significant market share.

It is why most countries have banks that have been around for a century or more, and the biggest banks maintain their positions through being just that: the biggest banks.

It is why countries like Australia introduced massive reforms twenty years ago, called the Wallis reforms, to open up the markets to new competition … but it never happened. The Big Four banks in Australia twenty years ago are still the Big Four banks today. Same in the USA and most European countries.

That’s why, when we see new innovations such as Apple Pay, it is not something that will change or disrupt that much. It is just another evolution of how we exchange value, and it is based upon the banking system. PayPal changed the game but not much. It is also an add-on to the banking system, rather than a replacement.

In fact, the only thing that might replace the traditional banking system is something like bitcoin, except that this is going the same way as everything before. Thanks to the collapse of MtGox, the bitcoin aficionados are looking for a way to protect their bitcoin assets, and the best way to do that is to bank them.


Because banks have licences. They guarantee your money. They provide a promise, underwritten by that state-backed licence, that you will never lose your assets if you bank them.

That promise does not exist anywhere else. It is not given by Google, Amazon or Facebook, and even if these companies buy a banking licence – as many believe they should or will – why would they? What is in it for them?

No, I’m not a fan of this wave of change that everyone calls disruption unless it is put in context. The disruptive change is not coming from an Apple or Google. It is not coming from outside the banking industry. It is coming from the inside.

Banks like mBank in Poland, ICICI Bank in India and Equity Bank in Kenya. These and other banks around the world are creating far more interesting new models of finance and value exchange than the so-called disruptors. So watch all of these spaces, but watch the ones on your own back door first, as they are far more dangerous than those beyond the horizons.

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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  • Another great post Chris as follow up to yesterday.
    I think the “tech will disrupt the banking industry” message has been misunderstood and in many instances lost in translation from a “prophecy of disruption” to a “prophecy of doom” for the banks.
    As I said in my comment yesterday, I believe the banks will be disrupted but for the many reasons you state here will not be replaced. They will need to “pivot” (to use Silicon Valley parlance) and find news business models as the disruptors attack their existing revenue streams but the advantage they have is the very regulation and protection from failure that many consider their weakness.
    I posted a short comparison of Marc Andreesen and Stefan Loesch’s debate on the topic a few weeks ago: https://medium.com/payments-innovation/on-fintech-and-start-ups-eating-the-banks-lunch-6aaf7b4c90a4

  • No argument with your comments Chris. The banks have the ‘protection’ of licences. As you say back in the 90’s ‘Mr Gates’ was threatening to ‘make the banks history’ and that threat, a bit like Microsoft, has had multiple ‘updates’ since then!
    BUT and it is a big BUT – If we go back the root function of Banks and Banking, at its core was the need for someone to act as a ‘Trusted Agent, Intermediary, Third Party and Repository’ in a growing community….. Sadly Banks as a whole, driven by a cadre of Bank Executives, Directors and certain lines of business seeking a ‘quick buck’ with no understanding or conscience of the consequence of ‘greed’, have in the eyes of a significant percentage of the population lost that trust.
    Banks and Bankers HAVE to regain that trust and that is going to take time.

  • As a Microsoft employee (disclosure) I think I should comment. Microsoft look forward to helping banks with their technology platforms to enable them to handle any and all competition that the future has for them, whether they be tech companies, non-bank entrants, start ups or entrants from overseas. In the World of technology something that was said and done 5 years ago is considered to be history.
    Microsoft is currently focused on helping our clients succeed and are with them for the journey. If you want evidence of this go and look at how the Microsoft technology platform is helping Metro Bank serve customers, or allowing RBS to handle and crunch data or Nedbank to link mortgage advisers to their retail branches. I could go on but I hope you get the point.

  • Chris Skinner

    My favourite headline from Marketing Week in 1996

  • Bruno Schroder

    Except that for 5 or 6 years now Google has been quietly collecting banking licenses in many countries.

  • Chris Skinner

    Hey Bruno
    Getting a banking licence does not make you a bank. From 2007
    PayPal becomes a bank to fight off Google

  • Bruno Schroder

    Hi Chris,
    Sure and I’m with you when you say banks should watch their back door first. However, I disagree when you question the “what’s in it for them”.
    Google certainly has a reason to collect banking licenses and there is a lot to gain for Facebook and Amazon, much more than Google btw, if they use their cloud to provide a fully integrated commerce platform to the many businesses that are using their services already. From a technology and financial standpoint, they can put on the market a fully cloud hosted point of sales application including paiements. I cthink their recent announcements and hiring are a sign they are moving in this direction.