Can (Blank) Replace Big Banks?
Last week Mashable published an article by Douglas Rushkoff called “Can the internet Replace Big Banks?” Although a small community of enthusiasts often writes about the intersection of finance and technology on blogs like Bank Innovation, Finextra, and here at BANKNXT, it’s not every day that the topic goes mainstream, and I’m sure many in the financial technology community read Rushkoff’s article with interest. I’m equally sure that most of us had the same reaction: “Not quite.”
I essentially agree with Rushkoff’s point. Yes, the internet has the potential to massively disrupt the banking industry by making it much easier to connect lenders to borrowers and buyers to sellers. Yes, the internet makes it easy to create, store, and trade entirely new currencies like Bitcoin, Time, Dollars or LETS. Yes, these technologies have existed for years. Still, while Rushkoff wonders why disruption has not occurred, we know why. The evolution of banking is not a technology problem, it’s a regulation problem, and it’s a business problem.
The Current State of Financial Intermediation
Today, a diverse ecosystem of institutions translate savings into investment. This ecosystem includes investment banks who issue corporate bonds and equity, retail brokerage services that let consumers choose their own investments, and even fledgling peer-to-peer lending services like Zopa, Prosper, and Lending Club.Still, the basic unit of financial intermediation is, as it has been for the last 800 years, the bank.