Academic journal article ABA Banking Journal

Are You Still Relevant?

Academic journal article ABA Banking Journal

Are You Still Relevant?

Article excerpt

Not a pleasant question, but a serious one, for two reasons: technology and overregulation.

The question was prompted by the quote on page 11 from Microsoft's new CEO, Satya Nadella, in which he says that what concerns him most about running the company is relevance, not longevity.

Technology, of course, is rife with the risk of irrelevance. Nadella recognizes that Microsoft, though still a profit machine, could quickly become irrelevant. (Remember DEC, the minicomputer giant?) By contrast, banks have an edge in relevance. As long as there is money and commerce there will be banking, although some of the specifics--checks, for example--could become irrelevant. As lenders, bankers actually have a good window into the matter of business relevance. Yet none of that guarantees an individual bank's continued relevance.

In fact, despite the recent positive trends in bank profits, many bankers worry about their institution's future. That's largely due to the massive amounts of new regulations that hinder their ability to generate revenue and profits.

It's hard to remain relevant when the government increasingly runs the show. Exhibit A for that point is the U.S. Postal Service, all but irrelevant now. (It is the height of irony and absurdity to have the Post Office propose to enter financial services to save itself.)

The other big factor that impacts banks' relevance, just as it does Microsoft's, is technology. The arrival of ATMs didn't make branches irrelevant, but it was the start of a transformation, accelerated by online banking.

But now, emerging electronic payments such as person-to-person (p2p)--many of which place nonbank companies in a central role--are on the cusp of diminishing banks' role in the payment system. …

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