Why We Still Need the Bad Banks

I don’t know about you, but I almost forgot the banking Royal Commission was still going. Technically we’re up to superannuation now, so I suppose that’s slightly different…but still.

Perhaps it’s because the political landscape has been so restless lately, that I’ve kind of tuned out. In fact, I’m kind of worn out when it comes to financial debauchery.

It feels as if the world has learned nothing since 2008. The banks continue to step all over us.

One can only take so much misery before you just decide to ignore it.

However, I’m still eager to see what the wash-up from this whole saga will look like. We’ve seen heads roll already, but I wonder what the final punishment will be. That is, if there is a final punishment at all.

I think a lot of people are worried that no matter what happens we, the everyday Australian, will end up copping the punishment. After all, when all is said and done, most of us will probably still be banking with one of the big four.

In the end, will anything really change?

Well, call me a naïve optimist if you wish, but honestly I do believe something will change. But that change won’t be coming from the banks.

No, it’s probably better that they stick to the ways they’ve always done things. That is how we’ll begin to see real change.

At this point, our real hope isn’t changing the banks but changing the industry.

How the Fintech revolution could save us

FinTech is undeniably the future of finance. The only question is how it will manifest itself.

Right now in Australia, FinTech is beginning to spread its wings. We’re seeing novel financial services and ideas being brought to life through new technology. And the people offering these services and technologies are, for the most part, start-ups.

These are ambitious companies trying to stay at the cutting edge of new finance. It’s fantastic for consumers. We now have more options than ever before.

The problem is we have all these options but we’re lazy.

Choice can sometimes be a burden. Especially when there are too many options. I know that may sound counterintuitive but trust me, that’s just how our brains work.

Too much choice actually leads to a lot of stress. And that stuff will kill you, so we don’t want that.

Only the most eager of early adopters will dabble with the FinTech services available. The majority will almost certainly stick with the big four for most of their banking needs. Even if they hate them.

So how do we get people to change? The answer is simple…we don’t.

It’s not people that should change, but the banks themselves. Now, you might scoff at me and wonder just how I imagine that will happen, but we already have our answer.

If the Royal Commission doesn’t whip them into shape, the market will.

The banks, like any other corporation, are driven by profit. That’s the whole reason they’ve ended up in hot water. They got too greedy about making a profit.

That same greed is exactly why they will need to change.

What if Fintech companies and banks worked together?

See, FinTech companies are all about doing what banks do, but better. Usually this is done through a fancy app or program. Whatever it is, tech is usually at the heart of it.

Generally these apps are cheaper, faster and more effective than the banks services. Now, not every customer may want to use them, but the banks certainly want to copy them.

If the banks had killer apps, they’d be raking in even more money. So, the answer is obvious…the banks should work with the FinTech companies.

Together, they can combine their biggest strengths. The security and reliability of a bank, but with the great features and low costs of a FinTech.

I’m not talking about mergers or takeovers either. This is a new wave of ‘modular’ banking. A sort of one-stop shop for your banking needs, but the services are provided by a range of companies.

Here’s how Oliver Wyman sees our banking future:

Distribution will become dominated by digital ‘platforms’ that can steer demand to any supplier, allowing new product providers to proliferate. Regulatory changes, particularly around customer data, will also weaken financial firms’ hold on their customers.

You may end up banking with the same old bank, but each service it offers is run by a different provider. And who better to aggregate all these services than the current banks we have.

It means you still get to keep the regular account you love, but without the reliance on just one organisation.

I know it probably all sounds a little crazy right now. But it could be the best thing to happen to banking in millennia.

We all want the freedom of choice, but we don’t want to have to choose for ourselves. If the banks and FinTech manage to create a modular industry, we may be able to have both.

And that may just be the best reason to stick with the big banks I’ve heard all year.


Ryan Clarkson-Ledward,
Editor, Tech Insider

Ryan Clarkson-Ledward is an Editor at Money Morning.

Ryan holds degrees in both communication and international business. He helps bring Money Morning readers the latest market updates, both locally and abroad. Ryan tackles all the issues investors need to know about that the mainstream media neglects.

Ryan is also the Editor of Australian Small-Cap Investigator, a stock tipping newsletter that hunts down promising small-cap stocks by dissecting the latest events affecting the world.

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