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It’s not the end of banking as we know it, but …

I’m intrigued by how often I hear the line: “banks are stuck in the past”.  Most upstarts and startups are saying that banks have their heads up their rears, aren’t focused upon the future, don’t think out of the box, cannot change, blah blah blah.  Do they really believe this?  Apparently yes.  Such arrogance is impressive and is the reason why so many new companies are entering the industry to change it.  The question is: will they?   My answer is: a little.

Some of us have been around this industry a long time and have heard this mantra – banks are going to be disintermediated – a long time too.  I first heard this mantra en masse in 1995, when the internet was a game changer, and nothing happened.   I remember hearing a great intellectual presenting at a conference in 1996 and stating that banking will change more in the next five years than in the last fifty.  Banking didn’t.  I remember hearing lots of presentations in 1997 about Microsoft, Wal*Mart and Virgin disintermediating banks.  They didn’t.  Equally, I remember hearing many talking of banks becoming a utility function and just ‘dumb pipes’ in the late 1990s.  They aren’t.

Now some might say: ‘yet’.

What goes around, comes around, and some might think that the fact this hasn’t happened yet is just due to timing.  It will come.  A bit like technology is yet to have its day, it will come.  We all knew that mobile was coming to banking, but it took Apple to turn the phone into a computer and make it mainstream.  We all know that biometrics is coming to banking, but it took apps to allow this to work intuitively with payments and make it mainstream.  We all know that visual call centres will displace audio call centres, but it took Skype to make it mainstream.

In other words, we all know a lot of things are happening or coming, but it takes a game changer to incorporate and develop the capability before it becomes mainstream.  And, when that game changer appears, banks adapt and change.

So what is the game changer that will make disintermediated banking mainstream?

Cryptocurrencies?  Mobile?  Wearables?

These are interesting but the underlying ecosystem for all of these is still banking.   The same is true of the leading names in the startup world such as Prosper, Lending Club, Moven, Simple, Currency Cloud and more.  In other words, the backbone of most of the startups are banks.  Similarly when we talk about Apple Pay or Samsung Pay or PayPal or Square, they all sit on top of the banking infrastructure.  They don’t change it.

Someone asked me the other day about the landscape for banking disruption and who all these new companies used for their financial system.  The answer: banks.  All of the new startups have to operate through a system today and that system today is the bank system.  This is because the bank system is regulated, licenced and has high compliance, capital and governance requirements as blogged the other day.

So what will change this?

OK, so don’t get me wrong, the newco’s are changing this.  P2P, crowdfunding, cryptocurrencies, mobile apps, APIs, cloud and data analytics are all impacting bank structures, products, services, margins and operations.  But what I find irritating is that most of the upstarts think that banks aren’t bothered about this, aren’t responding, don’t care and, in some cases, are just stuck in the past.

Some believe that banks are dinosaurs, sleeping on the job, ignoring the threat and believing that they don’t need to respond.


I haven’t met one bank in the last year that isn’t taking digital disruption seriously.  In fact, I’ve been surprised at how many grey haired, fusty old bankers are talking to me about what they need to do.  They know they need to change, they see the issue and they are concerned about the disruption.  The most critical element here is more about what to do than the need to do something.

Most banks and bankers are aware of the challenges and are concerned about their strategies to respond.  They are aware of the legacy systems and structures, the fact that they may be disintermediated and the challenge of change.

In other words, a little like twenty years ago, they hear the rallying calls for change and are changing.  This means that banks are adapting to survive and, as in Darwin’s advisory note of 1859, “it is not the strongest of the species that survives, but the most adaptable”.

And there’s the rub: adapting to change.  Some banks are making it happen, some are trying to make it happen and some have no idea how to make it happen.   That’s the real challenge here.  Not the end of banking as we know it, but the end of some banks as we know them.


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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  • Chris, till we have national currencies we will have national banks and therefore banking.
    Banking will change greatly but won’t disappear as cryptocurrency-phophets predict.
    What do you think about telecoms and their banking efforts and chances?

  • Varun Sarin

    Having worked in “Digital” banking for the past few years, I completely agree that banks are reacting to change. The Digital division didn’t even exist in my bank 5 years ago.
    Yet, the key word there is reacting. And each time banks react, there are 5 startups that have predicted and are already in that space. This I feel is the biggest danger for large banks, as it takes away a bit of the value-add each time.