The 'mobile wallet' is putting a hole in banks' pockets
Bankers have a lot to worry about these days: stress tests, bad loans, cutting costs and increasingly trying to drive their customers toward new technology in the hope that they can close more branches.
But a recent conversation with a couple of senior Irish bankers revealed to me how worried they are about technology companies such as Google, Facebook, PayPal and Apple, who they see as potentially eating a large slice of the banker's lunch.
Techies are arguing that conventional banking could soon become a thing of the past with use of the internet and mobile devices booming. These devices are gradually replacing cash, cheques and usual banking cards as a means to pay a bill. Big financial players such as Deutsche Bank have warned about the potential commercial threat the tech giants pose to the banking sector.
With a technological revolution happening in payments, the nerds could take the final step by developing their own facility for allowing credits and taking deposits.
Technology is allowing people to buy more things, do more things and transfer more money online – through their mobile phone in particular. The more transactions consumers do through technology platforms, the less need they have for their bank.
Let's say you sign up to a Starbucks coffee account, which you top up once a month and the amount is deducted when you buy coffee. That is reducing the number of transactions you would have done with your bank – such as withdrawing the cash from an ATM or paying for the coffee each time with a debit or credit card.
I received an offer in the post the other day from my credit union. It is providing a payments account service. I just put in a lump of money, whatever is generally required to pay my bills, pay €50 per year, and the credit union will pay everything for me, from electricity and gas, to mobile phone and TV licence.
What is money in the bank? In the world of electronic payment systems it is just a balance that goes up or down. Banks are worried that companies such as Facebook and Google will become like banks or even go further and register regulated banking subsidiaries.
The mobile phone wallet concept is taking off. This would allow a consumer to leave their credit cards or debit cards behind them and use their phone to make all the payments or transactions they need. So why not have a Google card or a Facebook card?
Surveys in the US have shown a growing appetite among some people to use companies such as Google, Facebook, Apple or PayPal to do much of what their bank currently does.
In this brave new world, who holds your money? PayPal is a multi-billion euro payments success story and it argues that it works with banks by facilitating payments between consumer, retailer and the bank. It says it wants to work with banks not eliminate them.
Facebook launched its own credits system in 2009 where customers could use their Facebook credits to buy things, like online games etc. They could even buy credits in shops.
These global technology giants must decide whether they want to go the whole hog and effectively step in and do what banks have traditionally been doing for centuries.
Facebook already generates around 12pc of its revenues from payments. It has 1.1 billion users, while Google has 425 million Gmail users, Apple has 575 million iTunes users and PayPal has 132 million active users. The potential is enormous.
But before we herald the demise of the bank, there are a number of salient facts that have to be considered.
Facebook has stalled its credits system because it didn't take off as well as it wanted and is now pushing an autofill service, where customers load up their payment information into Facebook, which allows for speedier checkouts at mobile commerce sites.
Part of the issue is that some people are a little reluctant to provide their credit card details to Facebook.
Equally, the mobile wallet concept is emerging but remains in its infancy.
Some of the technology giants seem a little nervous about taking a big leap into this space, but nevertheless they can smell the opportunity.
Banks themselves will not go down without a fight and are developing and offering their own mobile banking services. They have the advantage of trust over the technology companies. They are also regulated, although it doesn't always work to the advantage of the consumer as we know only too well in Ireland.
Banks are trying to re-invent branches using more technology that would enable customers to do more even while the branch is closed. They have the added incentive that online and mobile banking is a lot cheaper to run than staffing hundreds of branches with expensive overheads.
Inertia is also on their side. I have seen long queues in bank branches as people wait to lodge a cheque with a teller at the counter while there is nobody at the speedier cheque lodgment machine in the corner.
In Ireland we still love cash. We use it a lot more than many other European countries, such as Sweden, where people don't go to ATM machines that often.
Banks have older customers who are reluctant to change, while the customer profile of technology giants is a lot younger.
Banks used to have a monopoly. In Ireland we may lament the erosion of competition in the banking sector as a result of the financial crash. But when it comes to purchases, payments and some aspects of where your money rests, big competition is on the way.