Two interesting pieces of news in the last week or so makes me think that now might not necessarily be a good time to be a bank.
Firstly, Apple announced that it will be supporting peer to peer payments in iOS 11 and then shortly after we learned that Amazon was looking to cut fees paid to credit card companies by incentivising customers to load the Amazon account via their debit cards.
It's the smallest encroachment into the world of the retail banking giants but a significant one nonetheless. It can only be a short hop from peer to peer payments on your iPhone reaching your bank; to peer to peer payments on your iPhone staying in your iTunes account for future use. An even smaller step for Amazon to look to disrupt banking in the same way it has decimated book sellers, high street retailers and, coming soon, supermarkets.
Where Amazon and Apple lead, Google will undoubtedly follow. The net result, inevitably, being significant pressure on banks, with their expensive to maintain branches, high cost retail staff and slow to respond management structures.
How do banks respond? I'm not sure that's even possible. Just as Nokia (eventually) saw the rise of the iPhone as an extinction level event and raced into the arms of Microsoft in the hope of salvation, so the banks are hamstrung by the weight of history and legislation. As we've seen with Uber and AirBnB, a preponderance of legislation doesn't always prevent an idea from taking off.
Losing deposits makes it harder for banks to maintain the risk standards imposed on them post-GFC, meaning that lending will have to be cut back to stay compliant. Apple, Amazon and Google are perfectly placed to step into the resulting void and make their billions work for them. Each has significant information about the financial activities of its customers and can leverage that information to frame lending decisions. Previously that kind of knowledge sat exclusively with the banks.
Whether heavy investment in the rising FinTech economy helps banks to respond, or whether it's a question of rebuilding their operational models; banks will have to change to survive - and many just won't have the ability to do that.