Unless you happen to have a vault in your basement with security measures to rival Fort Knox, chances are you aren’t buying a house or making monthly car payments in all cash or gold bars. If you are, congratulations on the power move.
For the rest of the world, we rely on banks to hold and lend us money when we need to purchase something worth more than we currently have. Banks have been a necessary part of participating in the economy for hundreds of years, but lately the once dominant financial institutions seem to be at risk of being unseated from their thrones of gold. As the digital revolution continues to enhance how we go about our daily lives, more appealing, convenient, and cheaper options are making traditional banking seem like an old relic from the past only still used by Baby Boomers.
Millennials Strike Again
There is certainly a lack of trust still being overcome after the 2008 financial crisis shuttered hundreds of thousands of businesses and put even more people in debt. But even since their recovery, banks are not adapting to the new age like they need to in order to stay relevant. The outdated format of traditional banking has fallen behind and may not be able to get up to compete with fresher, more flexible financial companies.
The biggest reason why banks are losing customers is attributed to Millennials. No industry is safe from the shake up this tech-centric generation is causing. Millennials have a “give me the best right now mentality,” with very little brand loyalty if there is a better option out there.
A research study by Kasasa showed that 82% of millennials don’t mind changing banks, and 83% of them would do so if a competitor offered better conditions like interest rates or cash back. Additionally, 65% of millennial bank-goers would choose a bank if it has a more convenient mobile app. Most users prefer a bank that has both online and in-person branches, but on average millennials visit banks in person less than once every 6 months. Having a high-tech app as well as convenient branch locations is a lot to ask, especially for smaller local banks.
Business Can’t Wait
Business owners of all generations are starting to become more independent from their bank when looking for additional working capital. Banks are now so encumbered with red tape and paperwork that it takes weeks, sometimes months, for a business to get approved for a bank loan. This is inadmissible in a digital age where businesses must operate with overnight speed in order to stay ahead of their competitors. Online lenders are winning over businesses with the ability to apply in minutes and receive funding in days, something government regulated banks will never be able to do.
Despite overcoming the lack of trust after the Great Recession, banks face challenges of building trust elsewhere. It seems every month there is an announcement of a major financial institution falling victim to a data security breach with stolen money or leaked credit card details. With blockchain providing a new level of untraceable security, many consumers are losing faith that their bank can keep their money and personal information safe from hackers and thieves.
Cryptocurrency peaked in winter 2017 and then leveled out, but that’s not to say it’s never going to take off. An increasing number of companies are using crypto to pay their employees, and many financial analysts still see Bitcoin as the future of monetary exchanges since the US moved off of the gold standard and made operating with cash incredibly unstable.
Lastly, digital communication has increased interactions over country lines and banks are falling behind where international money transfers are concerned. International wires through banks cost on average 7%, compared to blockchain wiring which is usually 1-3%. This new wave of innovative blockchain startups is revamping the banking industry by being easy to use online, speeding up the processing of funds and making transactions safer and more affordable, too. While this tech-savvy industry primarily serves Millennials and Gen Zers, those generations are taking over the marketplace and every industry, not just finance, is struggling to adapt to the new consumer base.
Banks are a part of life. Every working consumer needs a place to store their savings. But if banks aren’t careful, traditional banking can easily be replaced by online lenders and cryptocurrency companies with secure mobile transactions.