25 December 2017

One Can Only Hope

Could someone explain to me why banks becoming utilities is a bad thing?

The head of Ecobank in the UK, Edward George is filled with dread at the prospect.

The idea of this happening fills me with hope:

Well, one of the big challenges facing banks is that they’re in danger of becoming utilities. The big problem about utilities and why a lot of people don’t want to invest in them is that they have no real growth potential. With a utility, you start providing service over a certain network and you’re kind of stuck there. Where’s the value at? And the problem for the banks would be if the banks become somehow passive repositories of cash but all of the value-add is taken by the Fintechs: selling the service, paying interest here, making a margin here, left, right and centre, etc… So the idea has to be that there must be a value share, and that is the way to go forward.

Innovators out there, the banks themselves, have to come up with services whereby both sides can gain from it. It may just be that for example the bank benefits from having the hard currency coming to the bank account. Fair enough. Then the fintech can make their margin elsewhere. It might be that the fintech and the bank agree to split the fees 50 per cent. There can be many other things, but what they can’t be is just the finTech saying “Oh, yeah, I’ll use those bank accounts, but I’m going to take all of the value myself”, and vice versa. You can’t have the bank just saying “I’m not going to work with you,” because we need to work with the fintechs.
Basically, he is afraid that banks will lose their ability to make up the rules of the game so that they can profit by cheating the rubes.

I'm hoping that his concerns prove true.

H/t Naked Capitalism.


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