Mobile Payments Systems: How Close Is the Death of Physical Banking?

The growing popularity of online banking as well as modern payment systems such as Revolut, N26, and Monzo suggests that traditional banking may be moving towards its demise. On the one hand, more than 50% of consumers still performed monthly visits to physical bank offices with 80% of them making at least one such visit within the 6 months preceding the Fiserv survey.

However, this trend may be partially supported by older baby boomer audiences who do not feel at ease with smartphone applications and other remote banking instruments. On the other hand, major practitioners including Citibank are reducing their physical presence at an alarming rate moving away from brick-and-mortar branches. This article considers a number of trends in the financial industry to identify if we are getting close to the death of traditional banking.

1. Perceived Trustworthiness

The most widespread sphere of criticism for modern fintech companies is their lack of ‘tangibility’ making them appear less reliable than brick-and-mortar banks and more prone to ‘disappear into thin air’. Several stories on Reddit and other resources describe this problem citing the inability to reach the outsourced customer support, quickly react to the emerging issue to stop the fraudulent transfer of money, and the slow response of these organizations to both customer and police requests.

Considering the fact that a smartphone app may be the only contact you have with the bank, this further exposes you to the risk of losing access to all your money in the case of any technical problems, the loss or theft of your smartphone, or the inability to log into your account. This is a highly concerning sign considering the fact that many mobile payment providers do not have internal call centers and may not be available via voice calls on a 24/7 basis.

2. Technological Aptitude

The above-mentioned problems may seem insignificant considering the rates of operational and security issues shown by major physical banks. Large brick-and-mortar organizations including the Bank of Scotland, Lloyds, and Barclays have all reported 30+ significant breaches across their internal systems per month.

While born-digital mobile systems were originally created in the age of blockchain technologies, full anonymity, and cashless transactions, their traditional counterparts had to teach themselves these skills to survive the competition. In many cases, their old systems fail to learn new tricks and may be seen as clumsy and outdated by younger digital-native audiences. Many of them also lack the transparency of their modern counterparts that update you about any issues via multiple social media profiles and make it a rule to respond to your questions on Instagram or Twitter within one hour.

3. Costs of Use

Most proponents of modern technologies cite lower costs of use as one of the main benefits of modern solutions for mobile payments. N26, TransferWise, and Revolut charge you £0 for issuing and using their cards and 2% on the average for transferring money to anywhere in the world. All transfers occur instantly and you do not have to pay any fees when you are not using their services.

On the contrary, most physical banks charge substantially higher payment processing fees for inter-bank transactions while processing periods may amount to 2-3 days in some cases. This also disrupts the retail industry since many organizations in it do not want to pay the ever-increasing charges for all check-out operations performed with banking cards.

4. Lifestyle Integration

An avid iPhone user is generally more willing to buy the ‘Created by Apple, not a bank’ Apple Card rather than the actual Goldman Sachs product being sold under this name. The Web 3.0 environment we all live in implies that our social media profiles may be more trustworthy and traceable than the documents provided by us to a bank branch.

This is well understood by major brands including Facebook that add the capability to send and receive money directly to their instant messaging chats. When a friend in need is asking you for a $100 pre-salary loan, it is more logical to make this transfer from the same app rather than switch to a third-party interface or make a live visit to your bank. Even in the case of fraudulent scam attempts, digital payment methods such as PayPal generally offer better customer protection than traditional banks that may spend months considering your chargeback request.

5. Ease of Use

Most people agree that opening a digital app or a website live chat has become substantially more convenient than driving to your bank office during its working hours on a rainy day. However, this obvious factor is trickier than it looks. On the one hand, small mobile payments are easier to perform via the online systems created by modern fintech companies. Moreover, you only need your phone to use them and they do not prohibit transactions if you forgot your passport or your driving license at home earlier this morning.

On the other hand, traditional thinking still suggests that brick-and-mortar storefronts may be more suitable for making ‘more serious’ transactions. Complex life choices such as opening a long-term deposit or making a mortgage payment of several thousand dollars to your real estate developer are usually associated with the need for physical contact and confirmation from the bank. Modern financial institutions are well aware of these preconceptions, which explains the transformation of their brick-and-mortar storefront facilities into open-space zones with coffee shops, coworking spaces aimed at small businesses, and regularly organized entrepreneurial fairs.

The interesting part of the competition between modern services and traditional banks is its almost Hegelian dialectic. The new competitors highlight the disadvantages of their predecessors that criticize their own flaws and develop synthetic solutions combining the strong points of physical and online-based banking.

At the moment, the death of traditional services may not be in sight since most people prefer to experiment with new technologies as a ‘second card’ for convenient mobile payments and international money transfers rather than a ‘core’ all-purpose solution. However, the advancement of fintech start-ups and their acquisition of specialized bank licenses will inevitably allow them to offer a wider range of offerings including deposits and consumer credits. This extra step may give them the leverage to fully disrupt the financial industry and bring an end to physical banking services.