Online banking businessman using smartphone with credit card Fintech and Blockchain concept, Jame DiBiasio

Article provided by Jame DiBiasio, award-winning financial journalist and author of new book Cowries to Crypto

With today’s world warped by Covid-19, it’s easy to forget about the 2008 global financial crisis. But this is the moment when tech overtook banks in setting the terms for how we spend, invest, and save.

In 2008, Western governments bailed out commercial banks and embarked on massive interventions in the currency with programs like “quantitative easing”. It’s no coincidence that the Bitcoin protocol ­– creating the first cryptocurrency defined by software, not by government – went live in early 2009.

Banks however didn’t pay any attention to this. Nor were they interested in developments in Africa: in 2007, a Kenyan telecom company launched the world’s first mobile payments service, called M-Pesa. The debut of Apple’s iPhone was the same year and instantly became the trendy must-have for the smart set, but banks didn’t see how it could be relevant to their actual business.

It’s possible that without the GFC, banks would have cottoned on to these developments a lot faster. The fallout of the crisis, however, saddled banks with reams of new regulation. The City and Wall Street experienced a boom in hiring, but not of bankers or traders: instead, they onboarded hundreds of thousands of experts in compliance, auditing, and risk management.

In other words, banks in Europe and the US were distracted by politics, reputational damage, and red tape. Instead of racing to improve their service to consumers and small businesses, financial institutions coasted on outdated IT and the blindness (or arrogance) of incumbents.

By the time banks noticed Silicon Valley startups were eating their lunch, it was too late. Technology companies, though, knew that mobile phones had the power to put financial services in people’s pockets – and that a great customer experience would put crusty banks in the shade.

Banks were slow to realize how the digital revolution was transforming their business. The first evidence of its threat emerged in China. Here, a pair of giant, incredibly aggressive internet companies, Alibaba and Tencent, had added payments to mobile apps originally designed for gaming, shopping and messaging.

In almost no time, a billion people switched their spending habits to these apps; although users still have to retain deposits with a domestic bank, the data – transactions, user preferences, habits – was horded by the internet companies. The banks had become “dumb pipes”, mere plumbing. The value, and the profits, rushed to the tech players.

The impact in the West hasn’t been as severe. Banks may not be popular, but people trust them with basic safety, and Western banks are far more competitive and entrenched than those in China.

Besides, the first assault on traditional finance hasn’t been from Big Tech companies like Facebook but niche “fintechs” that attack specific bits of a bank’s business. These startups are agile but lack a bank’s scale or customer base, so banks have learned to coopt these.

Big Tech is finally wading into battle, however. The likes of Amazon, Facebook and Google have vast user numbers. Although the public and politicians have grown a lot more wary of these companies, they are embedded in society; this year, with Covid-19, their necessity is apparent for all to see.

And they are now moving into finance. Facebook, wishing to take a page from the Chinese superapps, is attempting to enter payments with its Libra coin project. WhatsApp, the Facebook-owned messaging app, is venturing with banks in India. Google is experimenting with lending, starting in Southeast Asia. Amazon is partnering with JP Morgan and Berkshire Hathaway to get into insurance.

Banks have belatedly begun to catch up. Those with the greatest resources – the JP Morgans, Goldman Sachs and Citis of the world – are learning to be agile, to share data with strategic partners, and to put their vast compliance infrastructure to work as an advantage against tech companies still learning the regulatory ropes.

Community and regional banks, coops, credit associations and other smaller players, though, face an epic threat from Big Tech. If they are to remain relevant, they are going to have to radically change how they operate. They are now playing on Big Tech’s court.


Cowries to Crypto by Jame DiBiasioCowries to Crypto: The History of Money, Currency and Wealth by Jame DiBiasio and illustrated by Harry Harrison is published by OANDA, a global leader in online multi-asset trading services. It will be available from 1 September on amazon.co.uk, priced at £19.99.


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