Banks Are Too Big to be Made Redundant by Blockchain Technology? History Tells Us That Their Days May Be Numbered.

Introduction

I’ve worked with banks and bankers for over a decade. Most people (bankers especially) believe that the business of banks amounts to lending money. But history is filled with incumbents being displaced because their leaders fail to properly understand the business that they’re actually in.

Banks sell, above all, trust.

And I think that they’re failing to consider an important lesson from history.

Railways Were Once Behemoths

But now railways are merely shadows of their former greatness, is that purely as a function of technology?

Sort of. In fact, as the road transit system in the USA was being developed, the railway companies were asked if they wanted to help contribute in exchange for some portion of the tolls. The railways refused, firmly of the belief that businesses and people would not stop making use of the railway system.

They were only half right.

The Railway Execs Missed a Critical Point

What the railway execs missed was what business they were actually in.

An entirely new infrastructure being built that was going to compete with them. They looked at how these cars struggled to travel long distances, and felt that the automobile was for short-distances only. They thought that they were in the business of selling access to their railway infrastructure.

What they missed entirely was that they were actually in the cargo transportation business.

Banks Are Not in the Business They Think They’re in

Banks make money by lending out money and earning interest, but that’s not their true business.

They’re not in the money-lending business, they’re in the business of trust. People and businesses trust that the bank such that they use them for all financial transactions. Banks insert themselves into the value chain by being a trusted intermediary. Well, thanks to blockchain, we no longer need trusted intermediaries any more.

And with banks no longer having a monopoly on trust their relevance is going to follow that of other railway companies.

Conclusion

If banks killer-feature is that they’re trusted enough to facilitate financial transactions (and charge everyone for that privilege), then what value are they truly offering the world when blockchain removes the need for a trusted third-party?

We’re only just beginning to fully understand the ramifications of what this looks like with DeFi, insurance and custody. Will banks ever disappear? Nah, not likely.

But it’s entirely possible that they become a niche service in much the same way that railways are today.

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