Why Banks Will Continue To Lose Online Payment Market Share To Tech

Feb. 13, 2012 8:29 AM ETAAPL, GOOG, BAC, SCHW, C, V, EBAY, MA5 Comments
Martin Lowy profile picture
Martin Lowy

The last few days I have been writing about some of the challenges that big American banks face. See this article on branch banking and this one on capital requirements. A lack of trust may be an even greater hurdle to sustained profitability.

At the banking conference I attended recently, one of the speakers asked the participants to name the financial companies they trusted. Vanguard and Schwab (SCHW) were mentioned. No banks. (Yes, Schwab owns a bank, but that is incidental.) The speaker asked for companies that participants trusted or admired. Apple (AAPL) was the name that prominently came up. The speaker asked about PayPal (a subsidiary of eBay (EBAY)). Did participants trust PayPal to process their transactions? Yes, was practically the universal opinion. What about the Google (GOOG) wallet? Would people trust that? Yes, again. The speaker went on to discuss some newer entrants into the electronic payments field and some of the new technologies. She concluded by wondering why the banks had yielded the trust factor, even in the space where they have such natural dominance- the payments system.

I and other participants shared a series of emails after the conference wondering why the banks had ceded the trust factor. We could see quite readily how their actions had eroded the public's trust. But why had they paid so little attention to this crucial attribute of financial advisers and intermediaries? A few of our suspects were:

  • The large banks are legacy companies that have grown by mergers. They have no guiding ethos. By contrast, the companies that we mentioned as being trusted or respected still have living (or, in the case of Apple, recently deceased) founders whose guiding principles remained dominant.

  • The process by which top management of large banks comes to the top requires different skills from

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Martin Lowy profile picture
I was trained as a lawyer and practiced in the fields of corporate law and bank regulation in large U.S. firms for 20 years, then decided to do other things. My career has included banking and being an entrepreneur. For seven years I was CEO of a high-tech sports business. I have retired from active business and spend full-time writing, mostly on economic subjects. My books include: InStAbILItY: Booms, Busts, the Fragility of Banks, And What To Do about It 2017 High Rollers: Inside the S and L Debacle (1991) Debt Spiral: How Credit Failed Capitalism (2009) Practical Handbook for Bank Directors (1995), second edition due 2012 Corporate Governance for Public Company Directors (2003) Capitalism for Democrats (2019) Capitalism for America (2019)

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