Banking has ZERO threat from the digital disruption

The media is full of reports on how banks are under threat from upstart and technology companies that are disrupting the banking model. Thrown into the mix are Millenials, the mobile revolution, branch efficiency, P2P payment companies, and many others. Terms like digital disruption and customer experience are sprinkled liberally to drive home the analyses. However, we need to take a step back and try to understand where the threat to banking actually is. At the most simplistic level, a banking P&L comprises of: 1. Payments revenue 2. Lending revenue 3. Fee revenue There is no doubt that payments revenue is undergoing significant transition due to digital disruption – but only when credit and debit card transactions are supplanted by other means of payments – most notably direct debits or virtual currencies. The virtual currency model has the potential to replace a bank but that doesn’t really fall under the purview of the digital disruption & payments upstarts under discussion. In other cases, when a private network card is used for transactions (such as many store cards), the payments model suffers but not the bank itself. The money still comes and goes into a bank account. The payments related revenue is also threatened by cash and direct debit (ACH) transactions. But it can be argued that the total money supply and transactions base has potential to increase because of these developments. Lending revenue is really a function of what a bank does with the money it has. So we don’t need to talk about it except when we speak of […]

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