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The payments industry has spent years convincing itself of a digital wallet future that seems inevitable, but the end game is undeniably far off.
April 8 -
Though still a microscopic part of the estimated $11 trillion consumer lending market, peer-to-peer lending is going to matter in a big way sooner than you think, say those familiar with the sector.
February 25 -
The idea of bringing criminal charges against one of the nations larger banks has become untenable. The potential cost in jobs, probable shareholder losses and market turmoil would be horrific.
September 9 -
Forcing traders to strap computers on their heads may sound extreme, but consider the current threat. Saving billions from trading losses might take the sting out of the loss of privacy.
April 9
"Chase or Google?" my colleague challenged me, asking which would be more important in ten years' time.
The answer may well be neither. Thanks to technology, many services that were once the exclusive domain of banks can now be offered by much smaller and nimbler firms like Lending Club, Square and Prosper.
Google or Apple may well use their mountains of cash to buy some of these start-ups. Or perhaps banks will see the opportunity and scoop them up instead, as BBVA did with the
There is, however, another possible and chaotic alternative. Web-based newcomers like Uber, AirBNB, and ZipCar have disintermediated the established hospitality and transportation industries in an extremely short period of time. We have not yet seen the killer app that will unseat traditional banks, but it might yet be coming.
The next big thing in financial services may well be person-to-person payments. Google Wallet is striving to become the leader in electronic commerce, but it has yet to truly capture the public imagination. That leaves plenty of room for disruption from one of the dozens of person-to-person payment systems currently proliferating around the internet, including
Likewise, peer-to-peer lending is in its nascent stage, but growing quickly. Lending Club's
I submit that the future of banking that collection of services that moves money and investments may well be dominated by firms whose names are unrecognizable to most Americans at present. If an app were available tomorrow that allowed me to move money from my account to a friend's securely and simply, I probably wouldn't care if the logo attached to the app belonged to a Fortune 500 company or a relative newcomer. I am certain that my children, who grew up downloading apps and music from any available website, wouldn't care.
These upstarts won't be traditional deposit-taking organizations in need of insurance from the Federal Deposit Insurance Corp. Nor will they seek access to the Federal Reserve discount window or underwriting securities. They will, however, bring with them a whole new set of risks from greater fraud threats to heightened cybersecurity dangers.
Regulators will be hard-pressed to keep up with oversight of these new entrants into the fringes of their world. However, the public has repeatedly shown that they are willing to accept those risks in exchange for convenience. I for one now deposit my checks by taking a photo with my phone. I pay for my coffee with a mobile payment app that allows the coffee shop to debit my account. While both of these services present additional risk, they also make my life a little easier. It's a tradeoff many consumers are willing to make.
If the future of banking lies beyond traditional banks, what are the established institutions to do? The answer is simple: Don't get left behind. Banks need to find a way to band together to create universal payment systems and broad direct lending alternatives. Otherwise, they risk becoming a part of the old economy.
Richard Magrann-Wells is a senior vice president and the Financial Services Practice Leader for Willis North America.
