Are Banks Heading Towards Extinction?

For a moment sit back and before reading this article think of a question –

Why do you need Bank primarily for? What’s your answer?

We asked this question to five different people and here is what they answer –

• Respondent 1 [ housemaid] – Need to get widow pension amount, as they do not give cash these days!
• Respondent 2 [ A middle-level IT Professional] – My salary credit happens, hence need one!
• Respondent 3[ A teenager] – I do not need one bank account! I get my pocket money in cash!
• Respondent 4 [ A homemaker] – Why would I need one, I get cash or use my credit card.
• Respondent 5 [ A shopkeeper] – Need to keep my surplus and buyer outside state directly transfer funds into my account, hence need one.

You can extend this query to senior citizens, stall owners, small and medium business enterprises or even CEO’s, and I feel they would also answer on the same line of funds transfer or managing money unless someone has a need for Loans, investments or government schemes.

If you are still figuring out “why the scrutiny of Are Banks Heading Towards Extinction”? Let take a closure look at some facts –

• As per the 2014 report, 38% of world population is still unbanked that means they are not using or holding a bank account.
• Opening and maintain a bank branch comes at a high cost and Banks are facing a tough time by Fintech players who operate at orders of magnitude less technology cost, and require no branch network.
• Another survey in the US highlighted the fact that 38% of millennials do not visit a branch for any banking needs, apart from using an ATM.
• At least In India that has 93 commercial banks, there is a lack of centralization just for example – a person whose salary account is in Branch X need to visit the same branch to get banking services. There are very few banks who offer centralized services.

These are some of the pain points/facts observed at a global level. And Hence the audit of the case!

Anything can only be extinct when the primary need to use it is fulfilled by other means. Just for example – the stalls enabling other state calling and local calling through an STD-PCO was soon replaced by mobile phones and cheap calling cards. In a similar manner if we are boosting #cashless society even ATM’s may soon be deserted place.

In a similar fashion, if we want to dissect if Banks are soon to be extinct species, we would need to know the fundamental reason as for why banks are primarily used.
Based on above discussion, we hope we could summarize the fact that you need a bank

• To get funds from another party. ( Peer to Peer Transfer – P2P Transfer)
• Manage the surplus to keep it safe. ( Savings deposit)

Hypothetically if we believe Banks do not exist and individuals and business still require to avail all the banking services.
What would happen –

1. People- who are availing banking services presenting a new alternative or picking a traditional one would it help people or would be a pain point?
2. Banking services- Are there any alternatives? Do we have stable and robust alternatives to banks as institutions?

Case Study

Scenario

The Banks do not exist anymore, however, thanks to digitization and innovation we have digital wallets, Agent Banking, digital platforms, bitcoins or traditional alternatives like pawnshops, microfinance, that could make things possible. How feasible would it be?

The Services

If we bid goodbye to Banks either we need to pick the traditional financial services like

• Pawnshop
• Local Money Lending Business
• Crowd Funding

Or the Modern Approaches like –

• Digital wallet
• Agent Banking
• Micro financing
• Bitcoins/Blockchains

However, each of the current methods needs a Bank Account! Please refer to the table below –

Bank Account Relevancy
Channels	Digital Wallets	Agent Banking	Loans	Government Schemes	Online Shopping	Investments	Funds Transfer
Dependency YES/NO	YES	YES	YES	YES	YES	YES	YES

And picking the traditional services has their set of cons, well known to us!

The People

As per the 2014 report, 38% of world population is still unbanked that means they are not using or holding a bank account, with banks being an extinct species it would not affect them. However, the remaining 62 % banked population may have to suffer if the alternative financial services are not as per the expectations. That means the Alternative financial services offers–

• Pawnshop
• Local Money Lending Business
• Crowd Funding

The verdict

Banks were not born in a day, and it took them thousands of years to be what they are! If we think of Banks as the institutions serving us daily, the alternative would only be a system as robust, secure and dynamic that could help each and every individual on this earth. So yes, Banks are not going extinct at least shortly! However, looking at the pain points/facts and no feasible alternatives Banks need transformation for sure!

Banks are not merely a place confined in four walls that keep your money safe and secure; there is a lot more that banks need to achieve. Banking needs transformation and adopts technologies to reach the base of the pyramid, to match up cost, access, convenience and affordability to people as an institution. They need to –

1. Look beyond setting up physical branches, ATM’s, POS devices and other means that connect the last mile and serves profitable to business as well.
2. Implementation of mobile money/ mobile wallets that could play a significant role in financial inclusion
3. Extend the use of mobile wallets/mobile money to shopping/payment of bills/bus-train-auto fare etc.
4. Go Paperless, adopt to e-KYC, biometrics, e-statements dematerialised form of securities that could serve economic for banks.
5. Initiatives to centralize and digitize banking services that could be availed from anywhere anytime.

Its time that banks moved on their definitions to adopt lean technologies, and reach the last mile for making banking convenient & affordable !It’s time for Banks to revolutionize and add “Banking as a fundamental Need” to every individual and let the power of money multiple to growth, evolution and development of human beings! Let Banks evolve to the new age of innovation!

References:

Global Findex Database
Why Banks are sleepwalking into extinction and what to do about it ?
The future of the bank branch is in trouble – here’s why