Can Internet Banks and Financial Services Replace the Megabanks?

by. Ken Tumin

We have seen the growth of internet banks over the last decade, and this has been beneficial to savers as we seek out the best deposit deals. However, the megabanks (Chase, Bank of America, Wells Fargo and Citi) have continued to grow larger. In 2011, they held 40 percent of all federally insured deposits. There has been considerable discussion about the government breaking up these big banks, but that may not be necessary if the internet’s influence grows as described in this article, “Can the Internet Replace Big Banks?” The article admits that the internet’s impact has been limited, but there are signs that it’s changing. According to the article:

“We’ve seen digital technology disintermediate everything from record companies to university curriculum. Yet banking has remained rather immune to all this disruption.

Sure, ATMs and online banking may threaten the bank teller’s union, but central banking’s monopoly over money has hardly budged. Just like we have to get our food from real plants and animals, we have to get our money from real banks. Or at least it appears that way to most of us.

However, the rapidly changing digital economy is about to give banks a run for their money.”

The article mostly focuses on the lending side of banking, but the real power of the big banks may reside on the deposit side. A useful critique of the article was done by this Andera blog post, “Can (Blank) Replace Big Banks?” It claimed that:

“The evolution of banking is not a technology problem, it’s a regulation problem, and it’s a business problem.”

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