IMAGINE A WORLD WITHOUT BANKS

IMAGINE A WORLD WITHOUT BANKS

In 1913, an entrepreneur “said in many newspapers and over his signature that it would be possible to transmit the human voice across the Atlantic before many years.” For that accurate assessment of reality, he was prosecuted for stock fraud. A U.S. District Attorney claimed that, “based on these absurd and deliberately misleading statements, the misguided public … has been persuaded to buy stock in his company.”

Among other things, this highlights the old adage that behind every great idea are a hundred people saying it can’t be done.

It also helps explain why, even though the digital revolution will create a better world for our children and grandchildren, things will get worse before they get better.

Consider, for example, the banking industry. Brett King’s book, Bank 3.0, does a good job highlighting the transformational change coming to that world. The change is because of technology and the resulting shifts in consumer preference.

There was a time, not really all that long ago, when the local banker was a pillar of the community. A good relationship with him (and it was always a him) was essential to every business owner. Not only that, every potential homeowner had to trek down to his office in hopes of getting a mortgage. Countless workers walked into the branch every week to cash their paychecks, make deposits to a Christmas Club account and more.

That world doesn’t exist anymore.

Now, just about everything you would ever do with a bank can be done on your smartphone. The only thing it can’t do is give you cash in hand, but an ATM can meet that need and it doesn’t have to be at a bank. Besides, today’s mobile devices do a great job of decreasing the need for cash. Between PayPal and other embedded services, payments can be handled seamlessly online. You can even split a dinner bill with friends instantly using person-to-person payment services such as Venmo.

All of this is making life better for most of us, but represents a real threat to the bankers.

Consider the fact that there are more than 96,000 bank branches in the country. Every single one of them represents a significant real estate asset for banking corporations. On top of that, each branch has a manager and staff who earn their living doing a job that will soon disappear.
It is only natural that talk of a world without bank branches will make them nervous. They will convince themselves that there will always be a need for branches. They will keep dreaming up new reasons for people to come in and see them. But it’s a losing battle because handling financial transactions with your smartphone is so much more convenient.

As the reality begins to sink in, the big banks will use their political clout to try and stop the transformation. They will pass laws to make it harder for the non-banks to serve customers. They will look for officials like the District Attorney who prosecuted the telephone entrepreneur for making “absurd and deliberately misleading” statements about new technology.

It will become a nasty political and legal fight that makes things worse for a while.

At the end of the day, however, the banks will find that no matter how many politicians they line up, they cannot stop progress.

Scott Rasmussen