A world without banks: why Barclays and co should be afraid

Feb 11, 2014
Edie Lush

Tech companies are trusted more than banks – so why shouldn’t Apple or Google manage your digital wallet?

ALONG with Barclays’ profits figures comes news that the bank will have to cut between 10,000 and 12,000 jobs this year, of which 7,000 will be in the UK. While Barclays is still reeling from the £290m fine for fiddling with the Libor rate, the job cuts raise the spectre of a world in which banks no longer dominate the financial sphere as they do today.

Recently I had a conversation with Peter Merrens, strategy board member at Cisco, which rather shocked me. He laid out for me a vision of a world without banks.

“There’s only one product that the bank sells that you have to buy from a bank in the US and Europe - that’s a current account,” he said. Everything else, if you have time to shop around, you’re probably better off buying from someone else. 

The more I thought about what he’d said, the more it rang true.  Home mortgages and insurance can be recommended by specialist brokers. MoneySuperMarket.com can find you not only the best suppliers of travel, pet and mobile phone insurance, but ISAs and loans. Most of those suppliers aren’t banks.

And if the bank has said no to your request for investment or a loan - well, you’re almost spoiled for choice. Just look at the growth of crowd-funding sites Indiegogo, Kickstarter, Kiva and Zopa. The point is that they aren’t just for entrepreneurs.

When I interviewed Slava Rubin, CEO and co-founder of Indiegogo in Davos last month, he told me the story of the couple who crowdfunded their baby (they needed $5,000 for IVF treatment) through his site.  Don’t want to borrow from strangers? Check out Agree It which lets you reach out to your Facebook friends when you’re looking for cash, either as a loan or investment.

Of course, your money has to “live” somewhere. At the moment, if I want to pay a bill or buy something on Amazon, or invest in an entrepreneur, my money will still come from my bank. But need that be the case?

Mastercard, backed by mobile phone companies Vodafone, EE and O2 announced last week that it is developing a contactless mobile payments system using smartphones. They’re not considering cutting the banks out in their development of Weve, but do they really need banks?  And might they be better off without them?

According to the last Edelman Trust Barometer, banks and financial institutions were the least trusted global institutions. And who were the most trusted? Technology and consumer electronics companies.  Is it crazy to think that Apple or Google might manage a digital wallet for you?

Peter Merrens doesn’t think it’s mad. “If you have more than £1,000, there are plenty of companies that would like to look after that money for you. If you’ve got less than £1,000, your mobile phone company could probably do it. In fact, it doesn’t even need to hold it in cash.”  Assuming their shares are liquid enough, you can pay the majority of your bills directly from your computer or phone, cutting out the bank entirely. 

Still sounds crazy? Think about what’s holding you to your bank. In my case it’s my relationship manager Emma who earned my undying devotion by steering the ship for my family when our bank account was hacked the day we exchanged on our house.

But were Emma to leave, I’d consider leaving too. Most people don’t leave their bank because it is so complicated to reorganise standing orders and direct debits. But now that it’s getting a lot easier to switch, we can assume that many of the 65 per cent of people who are unhappy with their current bank are going to be looking around for a replacement.

Still sounds crazy? I recently switched from using my Starbucks prepaid debit card to paying directly from my phone from the Starbucks app. I got to thinking, would I trust Starbucks with the money I spend with them over the year 12 months in advance? In exchange for some premium treatment or free coffees, I just might. And that prospect has to be scary for the banks.

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Is it really true that Google is trusted more than the BoA ?

Politicians are as much to blame for the distrust of banks as the banks themselves,bankers have proved themselves repeatedly to be greedy immoral parasites, but gutless politicians have done nothing to punish them,fining a company a tiny percentage of their multi-billion pounds profit is not an appropriate punishment for illegal behavior,bank CEO's receive salaries in the tens of millions ,but a aren't responcible ? How is that,what exactly do they do ? Unfortunately for banks ,the damage is done,my only thoughts about banks are about rip-off crooks and how to give them as little of my business as possible.Barclay's is a classic example of a business that is morally bankrupt and in any other business sector should have been shut down by regulators for gross misconduct

"Barclays is still reeling from the £290m fine for fiddling with the Libor rate". Doubt they even noticed.

I think everyone is super-suspicious of all banks now that we know they gamble with all our money, that they can just decide on how much we can take out if THEY are under stress, that this means we don't actually have ANY real CASH sitting in that account, so the only reason we leave the balances there is because we have all our payments set up - I have used Citibank (I am in the US) for the past 10 years, mainly because they give me an overdraft account which allows me to occasionally write a check when I want to and cover it when it fits into MY plans, which is really helpful. I have looked at many (small) banks, but none offer the overdraft account, so I do not change. But once the perks are good enough we DO NOT need those big banks at all, and if the credit unions or other organizations were available to everyone, with the perks, we would all change !!!!

Another technology related to the subject is BitCoin. It's by no means perfect, but it could be a sign of things to come.

It's frankly amazing that an opinion piece about this topic can be written in 2014 without even a passing mention to Bitcoin.

I agree that digital currencies are an important factor - thanks for bringing them up. Article to come soon.