This technology could soon replace your bank account

One of the wonderful things about staying over with friends is taking a gander at their bookcase. It’s fascinating to see what other people are reading. Last week I happened upon A Modern History of Japan, by Andrew Gordon. And quite illuminating it is too.

Japan’s recovery after the blight of World War 2 was truly amazing. Within just a generation, the country went from pauper right to the top of the globe’s economic charts. And it was all off the back of copying what the US was doing. Well, I say copying, but the truth is, the Japanese did it all better. Not just better engineering, but through better management and corporations established to serve the people.

The point is the remarkable ‘catch-up’ effects of copycat techniques that are occurring all over the emerging world today. In agriculture and industry the emerging lot are taking good ideas from the West, and improving on them.

And nowhere are the improvements more prevalent than in the banking industry. In much of the emerging world, it’s not so much that  punters are migrating to mobile banking, it’s a fact that this is the only form of banking available.

Mobile phones are used in virtual payment systems because a normal banking doesn’t exist. In China today you can pick up a paper, swipe the barcode with your phone, and it’s immediately paid for. What could be easier?

Chinese internet giants Alibaba and Tencent have both launched online savings funds that work exactly like bank accounts and allow for mobile payments, doing away with the need for debit cards.

Of course, the traditional banks are angry as hell. And given that much of the Chinese banking system is owned by the government, there have been crackdowns. But the government knows that a slicker banking system is great for the economy. As they say, resistance is futile. And so a new and better system emerges.

A private tax system

Banking is an industry that’s well protected. If you want to know exactly how hard it is to establish a bank in the UK, you’d do well to watch Channel four’s highly entertaining Bank of Dave – which is still available online. Banking is hard to break into; it’s also very lucrative. I mean, just consider your boring old debit card. It seems like a straightforward payments system, but it’s actually a huge money spinner for the banks. Every time you use your debit, or credit card, the retailer is charged a fee.

Just think about that. It’s like a private tax system, delivering a proportion of all spending directly to the banks. It’s little wonder they’re so keen to move away from cash and cheques, instead offering direct debit cards to anyone that’ll take them. Credit cards in particular are extremely rewarding. So of course the banks are trying their darndest to keep a stranglehold on payments systems.

But trying to prevent mobile phone payment systems will prove impossible. The mobile phone companies are completely at liberty to expand their billing systems to everyday transactions. This is something you’ll soon be hearing a lot about. The iPhone 6 is due to be unveiled next week, and it’s widely expected to include a ‘mobile wallet’ which would allow users to pay for things using their phone. And as I said, the leap towards ‘m-banking’ in the emerging world has already happened.

Now, as a Right Side reader, you should already be highly sceptical about investing in the big banks. The threat to another key plank in their business model is but another reason to steer clear.

But what’s really exciting are the new payment platforms that are cropping up. I like eBay and its exposure through subsidiary PayPal. PayPal provides a crossover between traditional banking and the whole new world of direct payments with mobile phone apps.

My colleague David Thornton has found two m-commerce plays that he reckons have a fantastic chance of hitting it big too. In fact, one of them is a play on the banks’ rush to catch up with the tech upstarts – click here to read his research.

A few years from now the banking and payments system will look considerably different. In due course there’ll be no need for you to even have a bank account – at least, not one with any of the traditional high street banks. The banks have had it too good for far too long. Good riddance to this private tax fiefdom is all I can say!

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  • Fuman

    It all sounds great until you have a problem with a payment. Try getting hold of Ebay, Google et al then…

  • Ben Dover for Taxes

    No doubt it is inevitable as people always want what what suits them in the short term without considering the long term. People loved cheap products from overseas, right up until their jobs evaporated at home.

    No doubt governments (and by association their lenders – the banks) will ultimately be happy when the day comes that physical money is no longer viable and every single transaction will be traceable and…….taxable!
    Sold something for a few quid profit on Ebay? Ahhh a capital gain! Kerching

  • Cresswell

    What a great thought. The demise of the traditional bank. Just like politicians the just don’t get it. If I think of the banking system, I range from overpriced poor service to plain dishonest. Let’s hope the plug hole remains wide open and they disappear out of sight!

  • r

    This is a lovely idea but we need to be careful. Any payment or credit system, unfortunately, does need an overseer. @Fuman, above, makes a good point. Paypal is based in Luxembourg for a reason; it is outside the control of the FCA. Why? I have lost money with Paypal and, on another occasion, they would not release money held in my wife’s account; When I tried to contact them (not easy), they wouldn’t deal with the matter electronically but demanded I call a premium rate number in Luxembourg.

    I presume this is intrentional and, as they get away with it, will not others do the same. We need to be careful with uncontrolled payment systems.


    • 4caster

      Bengt, This is a comment on your email of today, “Silver’s time is now!”, which provides no direct route for comments.
      I have silver coming out of my ears as a result of following Moneyweek’s recommendations to buy it. It’s down another 33 cents an ounce today. So far it’s lost nearly £5,000. Should I buy more? Do you really advocate catching a falling knife?

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