Does it pay to put your bank in the bin?

Not long ago, this idea would have been preposterous.

The idea that banks, one of the core pillars of modern society, wouldn’t be needed. Outrageous.

But it’s not.

In fact, it is true. Banks are no longer required for society to function.

Technology and innovation are giving us trustworthy and – in many cases faster and more efficient – alternatives.

And banks are lagging behind.

Let’s consider the core banking functions: deposits, lending and payments. It is now true that technology provides an alternative for each one of these.

Although it might not be possible to completely leave the bank behind you are likely to save money.

Lending

One of the core banking functions is lending, and recently, a prominent personal finance journalist Nicole Pederson-McKinnon outlined just how much you’d save on the average Aussie’s debt.

The answer over a lifetime of a loan? $134,358.

You can read her full story here.

On average sized mortgages alone ($400,000), she estimated banks would charge an extra $127,722.

MoneyPlace’s own analysis shows you could save $5,664* on a personal loan compared to one from the major banks. (See if you can save here).

Payments

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Australians are famously advanced in payment tech (yay us!). Americans are still using cheques.

So is it possible to pay personally without using your bank? It’s becoming that way with more and more options, including soon the Apple Card.

“Neo-banks” are a new breed of online only tech focussed banks, which offer cards including features like free international money transfers.

Likewise, there are a plethora of payment alternatives available including the likes of PayPal.  In China, Alipay and WeChat now dominate smartphone payments.

Savings

We need somewhere that we trust to put the money we earn.

But there is a shift away from the established players. We are leaving our money on platforms like PayPal, Amazon or Alibaba. Some outliers even get paid in cryptocurrency (we don’t recommend this).

And if we take a look at innovations targeting the world’s unbanked, many of the most successful are not coming from growth of traditional banks or even financial services.

It’s coming from telcos, ecommerce platforms.

Technology allows players outside of financial services globally to take on the ultra profitable banking sector – which means better products for us.

The Australian situation is different. Competing against banks requires a high barrier to entry. But with regulatory changes including OpenBanking and the Royal Commission changing the conversation on trust, change is on the horizon.

Banks are here for now.

They still serve millions of customers.

But are they still “required”? Technology suggests that the answer is no.

*Savings are based on the average amount of credit card and personal loan debt consolidated by MoneyPlace customers, using the average interest rate and fees for such accounts (as published by ANZ, Westpac, NAB, and CBA); and upon the average loan size, interest rate and fees paid by MoneyPlace customers over a 5 year loan term. Individual circumstances will vary.