Banking industry hit by disruption
More bad news for the beleaguered banking industry
Today, it seems like big banks and corporations are constantly in the news. With the recent financial crisis, there have been massive government takeovers as well as buy outs from other banks.
But there’s more bad news for the beleaguered banking industry, and it has nothing to do with regulatory scrutiny or shareholder displeasure.
Banking is at the highest risk of disruption
People no longer need to go into banks to deposit checks and pay bills. With online banking becoming a preferred method for many people, there is less of a need for physical banks.
But there is more disruption to come. It is predicted that within five years half of today’s smartphone users will take advantage of phones and mobile wallets as their preferred form of payment method.
A mobile wallet is essentially a connection between your payment details and your smartphone or tablet device where funds are taken from your accounts and then digitally sent for in-store purchases.
Interest in mobile wallets is not what worries banks. A host of traditional banks are exploring offering mobile wallets. What is troubling is the willingness of consumers go outside the traditional banking establishment for making payments.
Even more disruption is coming to banks
In a world where everything is being unbundled, allowing consumers to pick and choose from things like television shows, financial services are becoming à la carte, as well. People, particularly millennials, are moving away from single monolithic banking institutions serving the majority of their financial needs to hand picking the specialized services that work for them.
Now start-ups are allowing people to take control of every individualized aspect of their finances. Beyond giving consumers control and options, many of these services are removing the friction of engaging in financial transactions and lowering the barriers to entry. It’s now as simple as a few taps on a mobile device to pay bills, transfer money and manage investments.
Silicon Valley is coming
In JPMorgan Chase annual letter to shareholders, CEO Jamie Dimon’s warned that “Silicon Valley is coming”:
There are hundreds of startups with a lot of brains and money working on various alternatives to traditional banking. The ones you read about most are in the lending business, whereby the firms can lend to individuals and small businesses very quickly and – these entities believe – effectively by using Big Data to enhance credit underwriting. They are very good at reducing the “pain points” in that they can make loans in minutes, which might take banks weeks. We are going to work hard to make our services as seamless and competitive as theirs.
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