The future of banking
Banks often attract publicity they really don't want. Newspapers have reported executives being interviewed by the Serious Fraud Office, US hedge funds moving in on the ethical banking sector and at least one taxpayer owned bank haemorrhaging money. Managerial jobs are likely to be cut and branches closed. And the billions laid out in payment protection insurance compensation still mount.
That's just a small selection of recent headlines. So what is the future of banking? Does it even have a future?
Banks have three main activities: protecting and transmitting our money; lending to businesses and home buyers; and investment or “casino banking”, the source of many woes. There's no reason why all happen under one roof – it's an historical accident.
The future – and this is already starting – could see these functions moving elsewhere, thanks in part to the power of new technology.
Until a generation or so ago, most people collected wages or pensions in cash. Then they paid for everything with coins and banknotes. Now most people depend on banks to transfer their money safely from source – employer, pension provider – to their accounts, and then move it on to pay for goods and services.
There is no reason why a traditional bank has to do this. It is purely mechanical. An online payments system such as Paypal could carry out this function. Or a retailer. Or one of those internet search engines that already know more about us than the nosiest bank manager ever did.
Few ever visit a bank or building society branch.
You don't require physical premises on high streets with security designed for a Bonnie and Clyde era. Thousands have gone already – many more will shut. Few ever visit a bank or building society branch – but they can be useful at times and important for some, so they won't all shut.
The plan to end personal cheques by 2018 came to nothing. Instead they will wither away. The new PayM system – most have yet to try it – lets you transfer up to £250 a day to family, friends, charities, local businesses, with just a mobile phone number (provided both parties have signed up). It's instant, free to use and cheap to run.
But that's just the start. The newly created Payment Systems Regulator, due to be fully operational next April 2015, sees one of its main tasks as encouraging innovation. As we collectively carry out seven billion transactions a year, worth more than £75trillion, it probably won't stop with PayM.
What about the banks as lenders to business and individuals? The biggest borrowers don't need them – they can go direct to financial markets. Many homebuyers already go to specialist mortgage outlets, often funded by international investors.
And “crowdfunding”, the online matching of those needing cash to those with spare money, can finance small business or personal borrowing. There have been trials foreign exchange – I've got dollars which you want and you have euros which I want.
These are still not even a corner shop on the money scene, and some schemes are bound to fail. But this “peer-to-peer” concept suggests the power of the banks could eventually fade, they are too big to turn themselves into crowdfunders.
As for investment banking, most – including many working for banks – would be very happy to see it go back into the casino. The banks have resisted calls to hive off investment banking. But separation will likely happen anyway.
Crystal ball gazing is a fraught occupation. But change shows no sign of slowing. So one thing is sure. There's no going back. And if non currency currency bitcoin catches on, then banks will be even further behind the curve.
Old fashioned bank managers only needed the mantra “three-six-three” (that's pay savers 3%, charge borrowers 6%, and be on the golf course by three o'clock). They no longer exist. The banks over which they once presided could follow them into history.