Not since the pre-Gramm Leach Bliley days have banks had so much to worry about in terms of disintermediation and nontraditional competitive challenges. It's not just high-profile players, such as Virgin Group's Richard Branson, who are threatening the status quo with moves such as the Virgin-headed investment in failing U.K. mortgage lender Northern Rock, and its rebranding of the peer-to-peer lending network CircleLending as Virgin Money USA. (For more on peer-to-peer lending, see related article, page 54). It's customers themselves (both individual consumers and corporates), enabled by technology, who are seeking alternatives and better ways to meet their financial needs.
Say what you will about the security, reliability and expertise of banks, but this time the talk of disintermediation doesn't seem to be coming from Chicken Little.
At SWIFT's Sibos conference in early October, there was much talk of increased competition from nontraditional players. As Senior Editor Nancy Feig reports (see page 13), the growing remittance market, for example, is dominated by nonbank players such as Western Union, and banks are on the defensive.
Or, as Donald Terry, general manager, multilateral investment fund, Inter-American Development Bank, said at a Sibos session on opportunities in the Latin American market, "Five or six years ago I could tell you nothing about the flow of remittances. [But] it's $63 billion now; next year it will be $70 billion. It's real money -- who knew? Bankers didn't know, but Western Union knew."
The consumers who send and receive remittances, Terry continued, "for the most part are out of the banking system, which is good for Western Union but not for banks and not for the local economies. The people who leave their countries of origin are the most dynamic, entrepreneurial people in the world -- those are the people you want!"
Another threat to banks' relationships with their customers is the emerging offering of "decoupled debit," where use of the ACH network enables the traditional DDA product to be untied from the issuer of a debit card, reports Senior Editor Maria Bruno-Britz (see page 14).
It's probably too late for some institutions to avoid being disintermediated out of long-standing businesses. Escaping this fate will require a new way of looking at banking.