Why we still need banks (for now)

Greg Dickens
Nov 16, 2018 · 7 min read
Photo by Robert Bye on Unsplash

“We need banking. We don’t need banks anymore.”

-Bill Gates

If you were to guess when Bill Gates said this, I bet that many people would think this could be a quote from last week or last month.

  • Get a loan through SoFi, LendingCircle, or Alibaba
  • And send a payments using various different cryptocurrencies

Trust

Many people might disagree and say, of course I don’t trust banks after the financial crisis.

Scale

The second value that banks provide is scale, and what I mean by this is that you can take your debit or credit card and go around the world and make payments or withdraw cash from most shops or ATMs.

Alchemy

The last of these is probably the hardest to replicate and the least obvious. This is what former Bank of England Governor Mervyn King dubbed “alchemy”, essentially creating money from thin air.

  • The Bank takes this $90 from this and makes loans to businesses
  • $10 is kept in reserve by the Bank to pay back any customers who want to withdraw funds or to cover the losses from bad loans that don’t get paid back
  • If you loan money to someone on a P2P lending platform like Lending Circle, you can only access that money when the loan is repaid or if someone else agrees to buy that loan from you. (not easy to do in a crisis when loans are not being paid back)

These are tough problems to solve

FinTechs have already solved the easy problems that are out there with banking. Everyone knows that banks are not user friendly and that FinTechs can create better front-end experiences — that’s not hard!

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Greg Dickens

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Maker, recovering banker, living in Greece. Building affordable digital tools for local news and other indie publishers at https://www.epilocal.com

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