NCET explore business and technology
By Dusty Wunderlich
Some industries are still ripe for disruption through technology. Financial services and banking tops the list. In 30 years, banks as we know them won’t exist.
Consumer confidence in banking is at an all-time low. Major banks like Wells Fargo bend rules and throw ethics out the window to stay competitive. More than 138 million Americans are “underserved” by financial services or “underbanked” which means they cannot access traditional financial services or simply do not have a bank account. Millennials are bucking traditional credit systems by using debit cards and paying cash in lieu of beginning a cycle of debt they watched ruin their families in the Great Recession.
Major shifts happen in a marketplace when frustrated consumers are desperate for choice and a small group of pioneering businesses who see opportunity. Every historical shift started with the public, or the consumer. Enter “fintech,” or financial technology. Whether you use PayPal or Venmo, Mint or another online budgeting app, or some online tool to invest your money like LearnVest or Acorn, you are among the early adopters of a new way of banking. You are the frustrated consumer the pioneers serve. You are developing a new way of banking.
Small advances like these indicate a massive shift. But, to build a better way of banking, the entire foundation still needs rebuilding. If we agree it’s wiser to address the cause of a disease rather than treat the symptoms, then we can approach the broken banking system the same way. The system is diseased. Poor ethics, terrible customer service and discriminatory practices are symptoms. Addressing these systems only temporarily alleviates our pain.
To determine the cause of the disease, we need to understand the system. The fractional reserve banking system was introduced in the 1800s to falsely generate capital. This system mandates banks only hold a fraction of its deposits. It enables banks to lend to borrowers using customers’ deposited funds. The Great Depression was caused when too many account holders withdrew their money at the same time. Because the banks only held onto a fraction of that cash, people lost their life savings to bad bets made by big banks.
Despite repeated attempts to solve systemic problems through regulatory mandates, lawmakers continue to solve for symptoms. The 2008 Great Recession stemmed from the same systematic flaw.
Banks did not carry enough cash in their reserves to account for the massive risk they took on with loose lending in the housing market. The public is finally begging for more at a time when the generation at the helm of decision making is more adaptive and disruptive than ever before.
Tools adopted today more closely represent that of a 100 percent reserve system, or a system that forces banks to hold all cash deposits. A slow shift to a new way of banking is in order and about to take hold.
Discover tools, resources and applicable knowledge to better understand this impending shift at NCET’s Tech Bite luncheon on November 16, 2016. NCET is a member-supported nonprofit organization that produces networking events to help individuals and businesses explore and use technology. Register for the event and get more info at NCETbite.org.