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Banking 2014: Go Virtual or Go by the Wayside

Editor's note: A version of this post originally appeared on†LinkedIn as part of a series in which its Influencers pick one big idea that will shape 2014.

"Banking is essential. Banks are not." Ė Bill Gates

In my quaint little New Jersey town, the eponymous Maplewood Bank & Trust once literally provided the pillars of the local community. Near the center of the main commercial thoroughfare, the buildingís Corinthian columns rise toward a facade where the institutionís name is carved in stone.

Thatís all that is left of the bank, however. As the financial landscape shifted, it long ago went the way of thousands of other defunct small banks.

Change is nothing new to banking, but it is likely to come faster and with more fury than ever in the coming months and years. Thatís because money, like the written word, is ideally suited to existing and traveling in electronic form. Now, the digitization of dollars is giving birth to a giant wave of innovation. Here's one impressive piece of evidence: mobile banking transactions grew 50% in the past year alone.

"Banking in the future will be something you do Ė not some place you go," former†American Banker columnist Jon Matonis wrote recently.

For many, it already is. Never before have customers had so many choices of where to lend, borrow, store and transmit money. These days you can even hold your wealth in a form of tender thatís untethered to a government or physical form.

Bitcoin, the digital currency, is making inroads and creating big-time buzz. Its rise leaves bankers in a quandary. They can help foster a fast-growing market thatís making their regulatory overseers queasy or stick to the sidelines as Silicon Valley startups, retailers and others blow past them.

The storyís the same in many other quarters. Outfits like Lending Club are cutting banks out of the credit market (a sliver of it, anyway) by providing lenders and borrowers with a virtual marketplace in which to meet.

In the payments world, startups like PayPal, Square and Stripe have grabbed the initiative, enabling customers to zap money from point A to point B without ever thinking of a bank.

When it comes to storing money, Google and other nontraditional payments players are pressing ahead with digital wallets, which are already in use by 11% of online consumers. Elsewhere, disruptors like Green Dot and Bluebird, the American Express-Walmart joint venture, offer prepaid cards that act as checking accounts without the traditional baggage of paper checks, statements and tellers.

All this tumult will cost full-service banks in the neighborhood of 35% of their market over the next seven years, figures the consulting firm Accenture. Translation: if Accenture's crystal ball is clear, banks will lose more than one-third of their business in less than a decade.

"Digitally oriented disruptors that are far more agile and innovative" and are the likely winners, Accenture says.

For incumbent banks, there are rays of sunshine. As the cornerstone of the nationís payments network, they still have a built-in edge. For institutions that grab the initiative, it could lead to new business, like using their secure networks to become the keepers of digital credentials and other data--a role that's already emerging in Canada.

Change also offers a chance to rethink their giant branch investments, from a place where paper passes back and forth to one where live people add value in ways that that digital zeros and ones canít.

Banks won't go away. Neither will bricks and mortar. But ten years from now, today's brick-and-mortar banks, and digital banking services, will look like quaint vestiges of a bygone era.

Neil Weinberg is the editor-in-chief of American Banker. The views expressed are his own.


(4) Comments



Comments (4)
The mega banks and some regional banks would like to make all Americans believe that they must use electronical banking systems to be with the in crowd. I began designing and writing software for banking in 1959. We have been inovators of many uses of technology for our own banks. Having said that, the community bank is still a very important part of the lives of rural america. While those who have never lived or understood the farmers and ranchers attempt to brain wash everyone to their positions in order to obtain greater control of the money markets, rural americans still like the personal touch. The propoganda campaign carried on by the mega bank marketers can be likened to the propoganda machine of the nazi's before and during World War II. The personal touch is always a winner.
Posted by Alfred Kreps | Tuesday, December 17 2013 at 4:35PM ET
Banks that thumb their nose at the traditional customer are banks that are being replaced by credit unions, which are doing a fabulous business by offering the services their owners (the people) want, rather than the services the big banks decide to impose on their customers---whether they want them or not. Money is meant to exist in my pocket, to be used as a form of payment for items I want, with the surplus to be stored securely in a bank or credit union--available for me to withdraw and put in my pocket as I need it. I would also point out that throwing around statistics--such as "mobile banking transactions grew 50% in the past year alone" are virtually meaningless until real numbers are plugged in. Mobile banking transactions make up what percentage of total transactions? If mobile banking transactions, for example, made up .1% of all transactions, and grew by 50%, the new percentage would only be .15%. Hardly worth mentioning. But regardless of the numbers, there will always be people who don't want to spend money electronically. Banks which fail to accommodate such people are banks that should be immediately shut down by the regulators.
Posted by BobBobb | Monday, December 16 2013 at 12:50PM ET
Was thinking the same thing Jim.
Posted by Bradley Leimer | Friday, December 13 2013 at 1:20PM ET
Be careful with quotes. The quote "Banking is no longer somewhere you go, but something you do" originated from the cover of Brett King's book Bank 3.0. Not a big deal that it is being attributed to Jon, but I am sure Brett would love to hang on to that quote since it is the foundation of a very well written book on the future of banking.

I do agree with the concept, however, no matter who says it. :-)
Posted by jmarous | Friday, December 13 2013 at 8:55AM ET
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