Investor + Small Business
Should banks simply go away?
When I asked my team what a bank should be, the pithiest answer I got back was simply: “Gone.”
Harsh, terse and perhaps somewhat epigrammatic — but fair? Well, it depends on how you think about the very essence of a bank. If you mean deposit aggregation, commercial and sovereign lending, and other well-defined and reasonable “safe” activities, I think the answer is a definitive no — banks are and should be here to stay.
But when you talk about digital payments, cross-border capital formation and smaller dollar lending, I’d extend Bill Gates’s famous aphorism that “We need banking, but we don’t need banks.”
I believe we can build a better banking system: one that is safer, smaller and absorbs less of the value created through moving, renting and storing money.
For hundreds of years, banks have played a vital, embedded role in our society. At their most basic, they provide a mechanism to match up savings with credit needs. Beyond that, they play a vital role in the government-driven approach to creating and distributing money in the form of fiat currencies (thereby allowing taxation), and they also serve as hubs for global payment and currency exchange.
The very image of a bank conjures up Fort Knox or the Federal Reserve Bank of New York—a fortress of safety, where one’s savings and data are secure.
Unfortunately, some banks have strayed too far from their roots, others have become colossal and ungainly hydras, and still others have abrogated consumer trust. Beyond this, very few have adopted technology or more novel business models to better serve their customers. In short, the banking system is in a decisive decade — its role is clear, but its future form is not.
I believe we can build a better banking system: one that is safer, smaller and absorbs less of the value created through moving, renting and storing money. And one that is less reliant on maturity transformation (borrowing short-term money and investing it in long-term assets and loans).
This better banking system will instead increasingly rely on technology to help protect, track and move money. And, in doing this — in evolving itself — banking will get better even as “banks” slowly go away. The idea that all money activities happen in one place will slowly erode. Banks will turn into a set of connected banking services, and consumers and society will benefit as a result.
A version of this article first appeared in The Wall Street Journal in 2016. All rights reserved.