Royal commission will fast-track the rise of mobile banking

You’d be surprised by how many people still like to go into a physical bank branch.

I certainly was.

You see many moons ago I worked in a bank. And I saw it first-hand.

Every fortnight, the cheques from Centrelink for those on the aged pension would hit bank accounts.

So every second Thursday a queue of pensioners would start to congregate outside the glass doors…about an hour before opening time.

This was ‘pension’ day.

Rain, hail or shine, it wouldn’t matter, the hordes would be there waiting to get in.

Some would peer in impatiently as we had our morning meeting. Then in a rush of passbooks and walking sticks, they’d storm the booths at opening time.

The most common practice I noticed was to withdraw the whole pension payment as cash. These people liked to deal in physical realities — real banks, real people and real cash.

Now I was in my early twenties at this point and had hardly been in a bank branch before I briefly worked there.

I’d grown up with internet banking and mobile mortgage brokers. Credit card offers came in the mail.

Why would I want to queue up or make an appointment to do something I could do online at my leisure?

It turned out to be the start of a growing generational theme…

The generational divide

There’s no question there’s a real divide between the age groups in this regard.

Check out the following:

China mobile payment dwarf US 7-05-18

Source: https://contently.com/strategist/2017/02/17/mobile-banking-rise/

[Click to open new window]

The sheer weight of numbers on the baby boomer side of things kept the ‘old ways’ going though.

To be clear though, millennials aren’t the only generation choosing to automate their finances.

51% of Gen X and 40% of baby boomers also use mobile apps or websites as their primary banking channel.

Until now, the banks were profitable enough to accommodate the different ways of banking.

But that’s rapidly changing…

The sheer weight of numbers on the baby boomer side of things kept the ‘old ways’ going though.

To be clear though, millennials aren’t the only generation choosing to automate their finances.

51% of Gen X and 40% of baby boomers also use mobile apps or websites as their primary banking channel.

Until now, the banks were profitable enough to accommodate the different ways of banking.

But that’s rapidly changing…

Big Four under attack

The business of banking is complex.

It’s this complexity that’s kept the big four going through thick and thin.

Simply put, they had a virtual monopoly in Australia.

But a combination of technology, changing regulations and demographic trends are slowly circling the wagons.

And the current royal commission could be the touchpoint for change.

The repercussions of the commission will affect future profits in both lending and wealth management.

These are the earnings powerhouses for banks.

If revenues stall here, then to maintain profits, costs will come under attack. Bricks and mortar branches are the obvious targets.

If they don’t, they could be in big trouble.

In the age of the smart phone, disruptive competitors are starting to chip away at the big banks’ younger customers.

Revolut in the UK is a mobile banking app that claims to be adding 8,000 customers a day. The majority of its users are in the 25–34 age group, with 29 being the most common age.

As the population continues to age, these disruptive competitors are aiming to take the most profitable future customers with them.

After all, a customer in their twenties, thirties or forties is a customer with a lifetime of banking ahead of them. A lifetime of profit making opportunities.

A customer in their sixties and seventies is likely a lot less profitable for the banks in this regard. Especially with the possible demise in wealth management profits on the back of the royal commission.

Like it or not, the days of branch banking could be coming to an end. And the banks will have a fight on their hands against nimble competitors in every sector they operate in.

As Bill Gates famously said:

Banking is essential. Banks are not.

This remains a fascinating space to watch. With the big banks making up around 27% of the ASX 200, it’s not a story you can afford to ignore either.</p

Good investing,

Ryan Dinse,
Contributing Editor, Tech Insider

PS: This piece in the AFR this week takes aim at Australia’s superannuation system. As I state above, the royal commission is putting pressure on all aspects of the finance system by exposing long corrupt practices.

You can read more here.


Ryan Dinse is an Editor at Money Morning.

He has worked in finance and investing for the past two decades as a financial planner, senior credit analyst, equity trader and fintech entrepreneur.

With an academic background in economics, he believes that the key to making good investments is investing appropriately at each stage of the economic cycle.

Different market conditions provide different opportunities. Ryan combines fundamental, technical and economic analysis with the goal of making sure you are in the right investments at the right time.

Ryan's premium publications include:


Money Morning Australia