Bill Gates famously said: “Banking is essential. Banks are not.” Once again the Microsoft founder’s musings appear to be turning into reality.
As technology increasingly becomes more integral in our lives, more people are using apps to carry out their banking activities, rather than visiting traditional branches.
There is something of a fintech (financial technology) revolution taking place.
Indeed, according to a Salesforce study carried out in January, 31 percent of millennials use mobile banking above any other channel. The second most popular choice was internet banking at 17 percent, following by ATMs at 15 percent. Only 7 percent of people surveyed now regularly visit a traditional branch of their bank.
Millennials aren’t the only demographic who are moving away from conventional banking practices. Just 8 percent of 35-54 year olds, and 9 per cent of the over-55s visited their branch in December 2016.
Why the high increase in demand for banking apps? I believe these figures can be attributed to the speed at which people are able to access their banking information and carry out transactions using banking apps. It’s about convenience.
In effect, your bank is in the palm of your hand. It’s a ‘no brainer’ that people would prefer to carry their banks in their pockets, rather than visit a branch and wait in line. We’re all too busy for that these days.
Indeed, almost all aspects of financial management are now more user-friendly, accessible and dynamic with mobile app banking. Balances can be checked in 20 seconds, rather than the time it takes to travel to the nearest ATM. Coupled with fingerprint identification features, it’s even quicker than typing in a four-digit passcode.
It’s also because security is becoming ever more robust plus, of course, people are becoming increasingly tech-savvy in broader terms.
In addition to these findings, the overwhelming majority of individuals polled primarily use mobile banking alerts to stay on top of deposits made into their accounts, and keep an eye on low balance and fraud warnings.
Will traditional branches become obsolete?
Traditional banks shouldn’t be underestimated. One of their key strengths is their customer franchise and hard-earned reputation for reliability and constancy.
In addition, banks have substantial expertise in regulatory compliance and risk management, and of course, capital. They have the ability to invest and the resilience to weather the storm from fierce competition.
After having overcome numerous crises, cases of fraud and poor management in the past, the question now is whether they will be able to outmaneuver this latest threat of app-only banks.
A mixture of advancing technology, omnipresence of smartphones and venture capital-based entrepreneurs is pressuring the transaction cost-laden financial systems. In principle, depositors and borrowers will enjoy more direct, immediate and less costly access to each other, thereby cutting into banks’ margins.
However, the main risk for banks now is not this wearing away of margins, but customers leaving them stranded with expensive legacy infrastructure.
On the flip side, mobile banking continues to gain ground every year as more people view banking from their smartphones as "the new normal."
According to the Pew Research Internet Project, of the 63 percent of Americans who own a smartphone, 34 percent of these consumers go online mostly using their phones, rather than a desktop computer or laptop. The growth of mobile banking correlates with this surge in smartphone usage. The number of Americans using mobile banking increased by 40 percent last year – equating to some 27 million mobile bankers.
As technology continues to progress, mobile banking apps will also advance and improve. Among the innovative functions will be the option to exchange currency on the fly, with zero applicable interest rates – a particularly exciting option for internationally-minded individuals and globally-focused companies.
As such, opening a bank with branches now could be likened to sending faxes (remember when they were indispensable?! Not that long ago either.) rather than emails or writing a cheque rather than paying with your card. Technology has come on in leaps and bounds.
Therefore, as an increasing number of users and investors will greatly benefit from these ultra-convenient banking apps, it can be reasonably assumed that in the future, the days of physical banks could well be numbered.
They are simply not designed with today’s world in mind.
Nigel Green is founder and CEO of deVere Group. One of the world’s largest independent financial advisory organizations, de Vere does business in 100 countries and has more than $12 billion under advisement.
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