Why Banks Will Not Be Able To Compete In The Future
The path of technology leaves clues.
This is something that can be garnered by watching what takes place. It is especially true in the digital era. Since the introduction of the Internet, we saw the same process play out.
What happens when the Internet shows up in a particular industry?
By analyzing different industries, we see there are two major changes:
- whatever is there gets disrupted
- abundance is created
The digital world is one of abundance. We know how quickly things can multiply. A lot of this stems from the fact that bits are much easier to deal with than atoms. That means we are dealing with exponential expansion as compared to the rate in the physical world.
Industries Completely Upended
With these two ideas in mind, let us think about the last 25 years and some industries that were radically affected.
Let us consider this:
- information (newspapers, magazines, encyclopedias)
- video (Blockbuster, Movie Gallery)
- music (record companies, stores, music players)
- communications (long distance phone service, snail mail)
- shopping (numbers department stores, retail outlets, shopping malls)
Digitization changes everything.
The total dollars disrupted in just these 5 areas is incredible. This is going to be compounded in the future as older generations die off. Newspapers, for example, still hang around in physical form due to the fact there are still people who prefer it delivered. These tend to not be the younger generation.
Cryptocurrency is a massive shift because it brought the Internet to money.
Banks And Financial Institutions
The Internet made everyone a blogger. Eventually, anyone could become a content creator and distributor.
Shortly, we will see where anyone can become a money creator.
This, coupled with digital wallets, are going to change everything. The transition will be evident when businesses are creating their own tokens. PayPal recently made news with their stablecoin announcement. This is nothing compared to what we will see down the road.
The time is coming when a small business will be able to issue tokens, either fungible or non-fungible, to their customers. Here is where the system gets completely upended. When business-to-customer paths are established, decentralized finance (DeFi) takes on a new meaning.
It becomes a major problem for banks and other financial institutions.
FinTech has done a number on the banking system. Cryptocurrency is the next step in this evolution. For their part, the banks are turning to governments for protection. This is a flawed strategy.
All financial institutions that seek shelter in this manner are doomed. This is the fate of most of these entities.
Technology Is Like Water
It is best to think of technology as water.
When industries try to protect themselves by turning to the legal or political system, things get dammed up. For a moment, the technological progress is stopped.
This is not permanent however.
During the stoppage, we see a pooling. Like water behind a dam, it keeps building.
Of course, when the dam breaks, the force is much greater than if were not constructed in the first place. Technology acts in the same manner. When the bursting happens, the implosion is epic.
The music industry is a prime example. Record companies fought file sharing. They even took to suing their own customers. This caused a brief reprieve yet did not stop the downloading of copyrighted music.
What happened in the aftermath was epic. Apple was able to roll in a cut a sweetheart deal because the record companies were losing a fortune. Many went out of business and consolidation took place. Over the next 18 years, the industry lost money every year on recorded music.
The same process is being repeated with finance.
Headlines are filled with talk of regulation, lawsuits against companies that broken securities laws, and banks trying to ensure they still have a seat at the table.
For now, they are on solid footing. The problem is the water is pooling. Technological progress can be slowed, it cannot be stopped.
Cryptocurrency has the potential to alter the entire financial system. This is something we saw previously in other industries.
Now that the Internet came to money, we know two things are going to happen: the incumbents will be disrupted and abundance will be created.
Another fact is that governments or the legal system will not be able to protect these entities. Trying to control technology is akin to closing your fist around water. It simply does not work.
Taking On Bigger Fish
Technology is growing more powerful each year. Not only is more progress made but there are more involved.
For this reason, the entities that are being affected are growing in size. Blockbuster was a large company yet it did not rival that of banks. When we see a company like Tesla turning automotive into technology, we see some very large corporations disrupted.
Eventually, governments are going to face the same situation. As the entire technological wave grows, the area of destruction gets much bigger.
Thirty years ago, the idea of technology being a major threat to the banks was unfathomable. Today, not so much. In fact, FinTech has done a number on that industry already.
We can expect more in the future. Cryptocurrency is a power mechanism since much of it is open source, digital, and global in nature. This was developed for the Internet, never residing in the physical world.
That is why Netflix was able to usurp Blockchain. Taking it one step further, YouTube is even more powerful than Netflix since it is open to all content (until they ban someone).
Banks are financial intermediaries that add friction, cost, and counterparty risk to the equation. For centuries, they were necessary. Technology is changing that.
Like this newspaper, this is not going to happen overnight. It will be a process, in part due to generational habits. However, over time, their power will dwindle as technology based entities start to take over.
This is going to happen. The only question is whether centralized entities such as PayPal are the winners or do we see decentralized options emerging as the standards.
Either way, we know there is disruption and abundance before us. The lessons of the Internet teach us this.
The banks are just the next in line.
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Banks act as the middleman also between the government (to uphold regulation) and individuals (trust the bank).
Through the government banks will continue to adapt and serve the purpose.
Well I am not sure I agree they are to uphold regulation.
The US banks have amasses over $500 billion in fines since the Great Financial Crisis because they broke the regulations. To them, it is something to feed into the risk/reward equation.
Exciting times and uncertain times we live in. Even though technology is becoming better and more people can create things online. From what I see and experience government always finds a way to destroy or forced us to follow their rules. I do hope we have a way to counter this and I'm sure we will.
The one who oppress and control everything will always try to find a way to use their power to control everything while we the normal people will always find other ways to resist. Nonetheless it is an exciting times we live in and can't wait to see how it goes.
Those in power do not like to lose it. That is where the masses have to step up and take over. There is strength in numbers. The question is do people go about it and form their power base.
That is true I'm trying to build a community here myself it's hard to find people who are hungry as me. But we have to keep trying no matter what.
That is very true. Most are not going to put forth much effort. They talk about how they want things to change but are willing to do much about it.
Sadly that's how it works with people these days.
Great post @taskmaster4450.
In life, nothing last forever. The pride within this banking institution is on a high side, which has affected the relationship between banks and customers.
The protocols that guides this banks in selecting special customers that can withdraw any amount is unwise and partial.
This is why internet banking will definitely cause harm to banking institution.
Surprisingly, i have stopped using my bank account, due to the stress i passed through some months back. Just because they have large number of customers, gives them the privilege to punish the average ones.
Gradually, there will be a decline in number of customers using this banking institutions.
FinTech did do a number. I recall when the mortgage originations in the US topped 50% done by fintech as opposed to the banks. I read in 2020, that number had reached 70%.
That is a sector of the financial world that was taken from the banks. There will be more.
Sir, you are right. Banks won't compete with the crypto world we are. 8o% of people are into digital network to make money and to have access to their wallet. Soon, people won't be saving money in their banks again but in crypto that will be giving them interest. Thank you Sir, for this educative piece.
A digital wallet allows people to send, store, and receive money.
That is what most use banks for. This is why the process is already in motion.
Technology is shuffling. Internet has replaced almost every thing. It is right that internet has made everyone's blogger and banks are now replaced with Blockchain technology.
That is true. The Internet is at the core of a lot of things. We are watching digitization eating everything.
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I think centralized entities will be very successful, but only in the short term. Centralization inevitably leads to hacks, rug pulls, etc., so over time it will become obvious which networks are truly decentralized antifragile networks - the ones that have been around the longest without a major failure / the ones still standing.
Centralized networks will appear and disappear, come and go. Decentralized ones that offer utility or cost savings and give some advantage to the people building businesses or other organizations on them will thrive.
At the same time, real understanding of the need for decentralization will increase as more people get first hand experience with attacks similar to what we experienced a few years ago when Hive forked from the old chain.
A solid way of looking at things. This could be how things unfold. Centralized entities have a lot of users to tap into. That almost ensures success to start.
Great article. Never occurred to me before about banks. but what i was expecting and is already noticing now is with the rise of the internet and digital banking, from a personal experience Ive been using less and less cash. There are times when i would go about weeks maybe even up to month without using any cash and paying for stuff digitally.
The Internet came to money.
That is going to cause a lot of disruption.
In some ways it looks like they are trying to reduce the number of banks country wide in the US. But I agree they need to improve their use of technology or get left behind.
I love the language used here... its very literary prophecy kind... "doomed to..."
I also like mention of dams... dams stop the flow of a free flowing river and kills it...like the fishes, its nutrients, natural cleaning abilities and submerge large fertile areas and displace people... water accumulates and gets stangnant and accumulates bacteria as free flowing river cleans itself.
Having water from a free flowing river emerging from mountains is generally safe to drink without treament...
Anyway...
Its all about value of money...fiat currency that's issued by Govt. is still king and banks are there to aid that fiat economy... so obviously banks and Govt. will lobby on to fight to that fiat economy not getting disruppted.
Too many headwinds with inflation, bank insolvencies, bailout criticisms... and ofcourse centralisation and mismanagement of monetary system, as its losing value, the debt ceiling crisis and debt default, risk of currency devaluation.
So, when all these problems with fiat is there ... Bitcoin and other crypto assets that are not controled and managed by a single entity and become deflationary over time as supply become scare have attraction.
Although bitcoin looks hyped, with the large companies buying BTC its becoming costly and unaffordable for common man, although can always own a fraction of BTC, some SATs...
but your talking of utility tokens they are different. every company creating their own token is still not money ... money that's practical money to buy still is mostly fiat, I don't see banks dieing out until fiat loses ground.
And not to mention every company issueing its own token, well its security or utility token... is it investment or money... its for speculation or utility....
Nah... I don't see this clearing out anytime soon...
Crypto is different right. It's decentralised, utility token, that's also money in the economy of that blockchain ecosystem because we pay for various blockchain functionalities with that native crypto token... but its still not universal money...although I would think it as money for my personal bias... although it can be changed to fiat and used although there are price vagaries, making it unstable even though even fiat has price or value falls over time...
thats doomed to happen...
My problem with fiat currency is that its value, true value is based on policies and performences of country economies, run by country authorithies... its power token for Govt. and it always supports friends of Govt. , rich guys get richer... its ugly, those guys get bailed out by our money in that's taken thorough tax or bank deposits and that money does not even as credit given to small people giving them a chance to create value and get atleast well to do...
anyway... just blabbering!! ... we all need to chase after money to survive, and miss out on life's other living adventures... no wonder lot of us think life, relationships is all based on money... more you have it, the more secure it is...and blinded to other aspects of life that should make us humans... I infact doubth weather to be human, is to connect, love, friendship, connecting with nature, caring about environment, respecting others talent etc, all impractical things it sometimes feels because without money can't survive, and a lot of money at that...
anyway