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We need banking and yes, we also need banks

I realised recently that my course of opinion is rather different to several other commentators and felt it worth noting where we agree and disagree.  Where I agree with most FinTech people is that:

  • Digital replaces physical
  • FinTech is changing banking forever
  • Mobile is getting rid of cash
  • You can have money without borders

Where I disagree with most FinTech people is that:

  • Branches are necessary
  • FinTech is not disrupting banks
  • We need banking and we need banks
  • You cannot have money without government

In other words, some FintTech people believe branches are irrelevant, banks will disappear and a libertarian dream of the free markets controlling the world are all feasible.  I don't.

Now I’ve covered these in depth before:

The list goes on, so why am I writing this again?

I guess because it’s becoming blatantly obvious that most banks have woken to the technology debate.  Digital is on the boardroom agenda and when Jamie Dimon says Silicon Valley is coming, we all know it’s taken seriously.  However, you talk to some banks, and you think they have no idea.  They’ve not heard of blockchain, think of mobile as being their iPhone app and reckon that Fintech is what you attach to a fish.


Source: Junji Ito

Those banks are likely to disappear due to their complacency and ignorance, but those banks are in the minority.

This is then where the discussion gets interesting.  As mentioned on Friday, banks have time to adapt.  Most banks have millions of customers and customers suffer from great inertia.  After all, all banks are the same aren’t they?

So banks have the advantage of being there already, with a customer who is unlikely to change banks.  In addition, they have a licence and most banks know that anything to do with money needs a government licence.  Just as James Bond needs a licence to kill, or he’ll get jailed as it would be murder, banks need a licence to bank.  Otherwise it’s illegal as it would easily allow money laundering and robbery.

This is why we can have the idealistic hope that society can run without a legal system, but the reality is it has one and needs one.  Otherwise, every day would be like The Purge.

So banks have the upper hand.  New Fintech firms have been attacking the business model of banks, but the start-up has to build customers, trust and critical mass, and that takes time.  Equally, when they do get critical mass, the law steps in. Just look at the challenges Uber is having as licencing and law catches up.  The same is felt to be true for the likes of payments and crowdfunding firms, and certainly we have seen that with the likes of peer-to-peer lenders and bitcoin.  Just look at the American laws on the sourcing of funds for P2P or the BitLicence and you’ll see what I mean.

This does not mean that banks can sit back and ignore the challenge and they do have to change, and this is where the real zinger hits.  After all, it’s the old but still salient point made by Charles Darwin*:

Charles Darwin

And banks are adaptable to change.  This is why, when it was forecast they would all go belly up twenty years ago, they are still here and bigger than ever.  Banks will still be here in twenty years.  They will be different.  They will be far more technology integrated and enabled.  But they will still be banks, with licences and customers and trust to keep value and not lose it.


* it is claimed that this quote http://friendsofdarwin.com/memes/not-the-strongest/  is actually based on the writings of Leon C. Megginson, Professor of Management and Marketing at Louisiana State University at Baton Rouge, USA, who had set out to paraphrase his understanding of Darwinian Natural Selection.



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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  • Branches are necessary
    Yes and No. Taking myself as a reference. My average number of vitis in the branch is about once a year for small newyear present. So it’s No, as I can miss that present. But yes, for important investment or other decisions I go to the branch – once in a few years as I do not have huge funds to spend.
    FinTech is not disrupting banks
    No indeed as banks can only disrupt themselves. And they will adapt, but they will only do it once that they will have to.
    We need banking and we need banks
    Of course we do. But tell me what is a bank? Will or must they all look the same and run the same services? And once we know that… Who can be one? Is it just a bank that can be a bank? I doubt it.
    You cannot have money without government
    There you got a point. A currency is some kind of social contract and as long as society is organized by government, politics will manage this contract of course.
    I obviously have more fear for banks than you.
    You know, regulation might even be seen as the only real asset of a bank (and the housing of their branches…)
    But regulation is a “free to achieve” asset for all who can buy themselves into that regulation. So the long term valuation of a bank is … the total value of their licenses…. and the housing. Their legacy banking software in most cases isn’t suited for resale anymore…. And their list of clients you say? Why buy what you can have for free? After all, Google didn’t buy their Gmail clients as well. Or did they? OK Google and the likes may not become investment banks, with branches you may visit once in a few years. But all the rest of banking with payments and saving accounts… Tell me, why couldn’t or even wouldn’t they go for that? It’s an open door to step in. And that door is wide enough for those giants to pass…. Global ID ownership will be the key for a big part of future banking and Google has a huge advantage on this. Just wonder if they realize this themselves ….