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.