Finance and mobile banking experts like Dan Schatt have a bold prediction: physical banks will no longer exist in less than a decade.
Mobile apps allow you to deposit checks with your phone. Commercial services like Square and iZettle let you turn your smartphone into a mobile cash register. Peer-to-peer payment systems like Venmo offer new ways to send money without ever writing a check. And millions of people are starting to use cryptocurrencies like Bitcoin every day for online purchases and other transactions.
What does this mean for physical banks?
It’s not just that mobile banking is more convenient – it’s also that it’s more secure. Mobile apps use multiple layers of security, including passwords, fingerprint scanning, and facial recognition. Physical banks can’t compete with that level of security.
But there are even more important reasons physical banks will disappear.
Money is a network effect business – the more people that use it, the better it works for everyone. For example, Facebook can’t exist without all your friends being on it. By contrast, nobody else wants to be part of a new social network if you’re the only person using it.
The same is true for money. The more people use physical banks, the better it works for everyone. But as mobile banking becomes more popular, fewer and fewer people will want to use physical banks. As a result, they’ll be left with fewer customers and less revenue, which will make them less profitable and eventually put them out of business.
Secondly, the cost of running a physical bank is becoming increasingly prohibitive. Physical banks need to staff branches with tellers and other employees, and they need to spend money on computers and software to run their banking operations. By contrast, mobile apps can be operated with a much smaller staff, and the cost of computer hardware and software has plummeted in recent years.
The biggest threat to physical banks isn’t even competition with mobile apps. Instead, these banking apps are run by traditional physical banks trying to compete in a changing world.
What threatens physical banks is their reliance on legacy technologies. The average branch still uses an ancient computer system that requires specialized knowledge and training for employees to function. The average ATM is even worse, using an out-of-date system that controls most ATMs in the world today. That makes them unreliable and prone to failures.
Finally, physical banks are vulnerable to new competitors. The Uber of banking isn’t another bank – it’s non-banks like Apple, Google, and Amazon that can provide financial services with a lower cost structure and better security.
Even if the future is bright for physical banks, they have a lot of work ahead of them to modernize their technology and adapt it to this new world. The good news for physical banks is they have plenty of time to avoid their extinction. Mobile banking hasn’t yet reached critical mass, so there’s still time for them to adapt. But if they don’t, we can expect to see physical banks disappear in the next decade or so.