Sorry, but Disruptive Technology WILL Kill Banks

Disruptive Tech 1000x571-2

Some of them, anyway.

You just won’t read that on their tombstones.

John Authers recently wrote an article in the Financial Times entitled “Disruptive technology will not kill banks” that was commented on by two people whose analysis and opinion I respect (Chris Skinner and Jeff Marsico). The subheading that read “Banking is too heavily regulated to be threatened by newcomers”

Marsico’s take in his own blog post on the topic is that bankers are doing just fine killing banks on their own. I often speak about how innovators inside (and outside of) banks need to fight through the Business Prevention Department to create new products and new ways of doing things. I also talk a lot about how banking is one of the last businesses still trying to compete through a gatekeeper model, while the world is growing increasingly open-sourced, crowd-sourced, social and collaborative.

I asked a group of participants at a recent workshop I was facilitating if they could think of any other industries with gatekeeper models that have been disrupted by new entrants. A newspaper journalist in attendance chuckled sardonically and said “Yeah, mine”.

The Business Prevention Department in newspapers must be very proud that they are now embracing fancy digital technology to make sure that no one can sneak past the gates to be exposed to their ideas, or even, you know, their ads, without first paying the price of admission. Even the newspaper’s website from my childhood home of Canton, Ohio (2010 population 73,007, down 9.7% from 2000) warns me with pop-ups that I’m nearing the end of my five free articles this month before I’ll have to pay for a subscription. I think I can live within those limits.

Banks or Banking?

But back to banking… The FT’s subheading, “Banking is too heavily regulated to be threatened by newcomers”, is far different than the headline, “Disruptive technology will not kill banks”. Chris Skinner wrote from last week’s Sibos conference in Boston that “We’re not being disrupted, just rearchitected”, and his view is that the reconfiguration of business models and structures from within are making more profound, if incremental, changes than those coming from the outside.

Fair enough, but those internal changes would not be happening at all if it were not for the disruptive external stimuli forcing that internal response.

False hope

I cannot foresee any time during the next half-century,at least, where banks fail to exist, some form of regulated intermediary between depositors, borrowers and remitters. Some day some form of digital cash or crypto-currencies might change that, but I cannot foresee any time during the existence of humankind that banking will fail to exist. Some form of value exchange will always take place, but we may not always need all of the current financial infrastructure to make that happen.

I worry that this distinction is lost on far too many bankers, and that too many of them scoff that rumors of their death have been greatly exaggerated as they read articles like that in the Financial Times’ in the walnut-paneled libraries of their local private club.

Small island in a vast sea

I spent the better part of the last five weeks on the road, meeting with bankers, entrepreneurs, investors, analysts and journalists in financial services and FinTech. From intimate Bank Innovators workshops with banks ranging from $330 million community banks to $2.2 trillion global banks, to FinTech demos at Finovate to the massive global banking conference that is Sibos, complete their own embedded rebel camp, Innotribe.

I met some new people from all over the globe, but I also saw a lot of old friends, and I remarked to several on the good news/bad news of that. The good news is how so many of us who seek and instigate change in financial services tend to know one another, and it’s a group I always enjoy being around. Many are fellow ‘recovering bankers’ who are finding it easier to change the industry from its edges. They are unfailingly smart, insightful, energetic, proactive, kind and helpful.

The bad news is that it’s a relatively small island in the vast sea of hidebound bureaucrats that are far too heavily invested in maintaining the status quo to notice the disruption happening all around them.

Unattributed cause of death

None of the thousands of cool FinTech doodads and thingamajigs that we are currently tracking are likely to single-handedly topple the entrenched mega-bank infrastructure, and as Chris Skinner puts it, ” There is no next big thing… get over it“. But these external changes are killing banks. At least some of them. It  just won’t be written on their tombstones.

Every year we continue to have fewer and fewer banks and credit unions. The number has been cut in half over the past twenty years, and it will likely take only five years to cut the number in half again. Bank M&A is heating up again, and market share in loans and deposits continue to accrue to the larger banks, and increasingly, to non-bank competitors.

No one will cite “lack of innovation” or “lack of technology” as a reason for selling their bank, but as they fail to meet consumers’ (and businesses’) rising expectations, their stagnant growth will lead to more sales to more capable hands. There are a lot of reasons why banks sell out to acquirers, but in the final analysis, the sellers’ board and shareholders vote that another management team could likely do a better job.

An increasing number of today’s consumers carry a powerful super-computer in their pocket, order merchandise seamlessly with one click and have a world of entertainment choices at the swipe of their finger. They aren’t willing to take a trip down memory lane just to complete a banking transaction that was designed in an era of paper and mainframes (if not ledger books and quill pens).

Yes, banking will survive. But will your bank?