Banks as we know are endangered!

Last week, it was in headlines that:

“BofA cut 10% of branches as mobile banking strategy pays off, a pullback from the two-decade expansion that took the bank from coast to coast – the move is primarily due to consumers preference to online and mobile banking”

Sooner than later, other banks will be forced to follow BofA, as more and more customers move to mobile banking, and the number of footfalls in branches are too few to make economical sense. Mobile has disrupted many businesses, and it is going to reshape the banking industry too. The question is not if, but when.

Pure mobile banking banks such as Moven, Simple and GoBank are getting traction, especially with the young generation. Pure mobile banks don’t have the high fixed cost associated with traditional banks, which it makes it easier for them to buck the trend, and leaves these banks with resources to innovate. For example, Moven’s Personal Financial Management tool MoneyPulse tracks spending, and provide visual cues to let customers know how they are doing compared to the targets they have set for themselves. It has analytics features that are not found in the banking websites of traditional banks.  

There is a commonly accepted notion that consumers are yet not ready to embrace 100% mobile banks. Also that the majority of people in developing countries are not connected to the “Network”, and many don’t have smartphones, leaving them out of the loop. To them, I give example of M-PESA, which is transforming lives in Africa. Eventually, everyone would be connected, because technology is constantly reducing the cost of access.

So, what does the future looks like for Barclays and Citibank of today.  Is it a dark alley for them?

This is a classic example of the Innovators Dilemma. The  banks would have to innovate, and re-invent themselves, else they would be replaced by these mobile only disruptive banks, who may be niche now, but would gradually become mainstream. Some of these banks have already taken a step in the direction by creating a mobile only version backed by the traditional bank guarantees like FDIC. I agree that traditional banks won’t disappear, but 10 years from now they would definitely be a lot different than what exists today. The digital channel would eventually be as significant as the physical channel, if not more, and not just an add-on to the traditional banking.