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Are Banks Becoming Obsolete?

With all of the technology involving banking and financial accounts, everyone is beginning to wonder, "Are banks becoming obsolete?" While there are many arguments on both sides, many of the current financial trends (and technology trends) indicate that we could be closer then we think to this scenario. What will it take for us to cross the line or reach the point when we no longer need banks at all?

3 Things That Have to Change Before Real World Banks Go Out

  • Online payments becoming mainstream: Right now, people seem to still need the feeling that they actually have money in a real world bank. But that feeling is shifting toward a banking model that assures people they have money, but they just can't walk up and withdraw it the old-fashioned way. Once this concept changes, people will use banks much less.
  • Better security for online money solutions: There are still many people who do not trust the idea of online banking systems. Like in the 1930s when people did not trust the banks and kept their money at home stuffed in Mason jars, there may be a day when people trust online money systems more than real banks.
  • Larger degree of trust for machines over people: Once people start trusting computer systems and instant pay as the mainstream payment method, there will be less of a need for banks and they may come closer to being obsolete. People still like to talk to real people but some studies show they are starting to trust them less. People make a lot of mistakes that machines (ideally) will not make. In order for banks to not be needed, people would need to prefer machines over people.

Related Article: Is Going Cashless The Next Big Thing?

7 Signs That Banks May Be On the Way Out

  • Big Data - With so much data being housed in the cloud nowadays, it's easy to see how people might think banks are on the way out. Look at how banks keep their data traditionally-on paper, in files, and in computers. But what if your mobile device could do the same thing and house everything you need, including your account numbers, balances and transfers, and history of your accounts right in the cloud. If they could also house money and transfer it (like they are already doing), then there would be no need for actual real world banking institutions.
  • Mobile Apps - Mobile apps are the engines that run automated banking online. If banks can create a mobile app that puts the control in the hands of the user, allows them to transfer, withdraw, or disperse funds without the need for banks, the days of traditional banks may be numbered.
  • Apple Pay - Innovative cutting-edge tech inventions such as Apple Pay threaten real-world banks the most. The reason is simple. Banks serve as a place to house money, allows people to send money to others, make purchases, and serve as a location for funds. Apple Pay does all of this and more. And what's more---it's more secure than banks. With their triple-layered back end security, Apple Pay users have all of the security they need, while their banking and credit card information is safely stored within the phone itself. What this means is that, if someone loses their iPhone, they simply notify the company and Apple Pay will fix the lost phone so that no one can get into any personal information. Since there are no bank cards or other information, data is always secure from third parties.

Related Article: When Should You Make That Big Purchase?

  • Online Shopping Increasing - It is estimated that online shopping will increase by 50% or so over the next 10 years. This results in overwhelming numbers of online shoppers coming to shop online from both desktop and mobile devices. Just as online stores threaten the existence of land-based stores, they also threaten banks. Ecommerce websites are set up so that visitors can easily purchase what they want online without the need for real-world banks. The more this trend increases, the more we will see an decrease in the use of real banks.
  • Mobile Users Increasing - Likewise, banks are catering more to mobile users, who use apps to control every aspect of their money transactions. Online shopping via mobile devices, payments to and from businesses, friends, and acquaintances, and other mobile transactions is gradually taking over the process of banking and simplifying it to an instant payment and transaction process. If this trend continues, banks may go out.
  • Day Trading and Online Investing - Despite the influx and total saturation of mobile devices, Apple Pay solutions, and other instant transaction apps, one of the things that kept banks alive in the past was the idea of investing. It was always thought before that, as long as there were investors who wanted to actually walk into a real bank and make deposits in order to invest in real world stocks, that banks would stay alive. But now with sites such as Forex.com and others, and Investopedia.com to guide people in the right way, more people are investing online than ever before. When it gets to the point of no longer needing real banks to make secure investments, why have them?
  • Machines Over People - One of the factors in the technology age is that people generally prefer machines over people. This is not always the best of all possible worlds, but when people deal with money, they tend to trust ATM's, online banking, and "pie in the sky" statements more than what people tell them. It's like they feel they have something more tangible if they can see it online. With this tendency to trust computers over word-of-mouth from real warm body bank tellers, the trend seems to say that banks may go in the future.

We never know where technology will lead us. Are banks becoming obsolete? Maybe. It may happen today, tomorrow, or next week. But one thing is for sure: if the number of mobile users, online shoppers, online day traders, and instant payment processing solutions continues, we may be coming to a day when a McDonald's will spring up where our hometown banks have been, tellers can be seen mowing lawns for money, and tools like Apple Pay rule the world. Are we ready to give this sort of trust over exclusively to machines? Are people so fed up with their real world banking experiences that they prefer an online solution exclusively? Not yet. But this writer thinks we're not too far from stepping over that line for good. And once we do, we'll never go back.

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Yael Kent's picture

Yael Kent is a personal finance enthusiast with experience writing about credit cards, credit repair, debt, and more. In addition to being an editor at Creditnet, she has been featured on Yahoo Finance, Reuters, and other financial sites.

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