By Jake Strickler, Co-Editor
This is the mobile generation. The untethered generation. Future historians will look back on this era as the beginning of the end of the traditional brick-and-mortar institution and the rise of…something else. We don’t drive to the video store and pick up a physical copy of a movie to take home and watch; we just push a button on our computers, et voila!
Even for the sale of physical, non-digital goods, dependency on the brick-and-mortar model is headed the way of the dinosaurs. As data from the US Census Bureau show, the amount of sales made online as a percentage of total retail sales has steadily increased from about 2.8% in 2006 to nearly 7.5% today. And as Poonam Goyal, a Bloomberg Intelligence analyst, explains, online sales for apparel retailers “are often more than 15 percent of their total sales,” showing that the potential for this sector is “enormous.”
With companies like Amazon and Wal-Mart leading the pack in innovation of on-demand drone delivery, we should expect this growth curve to go exponential very soon. No less a personage than John Maynard Keynes, architect of the Western world’s post-war economic boom, predicted in the 1920s that there will come a time when there is nothing that requires human labor that doesn’t have the potential for automation. In fact the central social issues of the 21st century, he argued, will revolve around the question of what people will do when the very concept of labor is made obsolete.
This being said, there are many industries that will have a great deal of trouble adjusting to these conditions. I can’t, for example, get my gas tank filled by a mobile app (yet). I don’t want a robot performing brain surgery on me (which is somewhere around the corner). I would hate riding in a robotically-driven car, (around an even closer corner). Even with the knowledge that the effectivity of these devices, and their potential for risk of error, may have enormous advantages over humans hands, there’s a cognitive wall that I simply don’t want to even attempt to scale. And, until recently, nobody would have considered eschewing traditional banks in favor of an iPhone app when it comes to the storage and management of their money.
This change is a direct result of a seismic shift in our attitude toward the very concept of money. Since the Nixon administration’s decoupling of the value of currency from something of tangible value (in this case, gold) in 1971, money has become abstracted. As Matthew McConaughey’s character in the 2013 movie The Wolf of Wall Street describes fiat capital, “It’s a fugazi, it’s a wazzy, it’s a woozy, it’s [untranslatable whistle]. It’s fairy dust. It doesn’t exist…It’s not [expletive] real.”
Expanding on this, the popular financial writer Michael Lewis declares the following in his 2011 book, Boomerang: “A banking system is an act of faith: it survives only for as long as people believe it will.” In other words, your currency wealth is in reality nothing more than a set of ones and zeroes in the databases of the financial industry. For concrete evidence of this, look no further than the fact that the US Federal Reserve currently has $1.39 trillion of physical currency (coins and bills) with virtually no inherent value in circulation. And this in a country with an annual GDP of $15.52 trillion. That other $14.13 trillion (or about 91% of the economy)? Fairy dust. And credit card debt.
With this in mind, it should come as no surprise that brick-and-mortar banking is on the decline. The traditional bank, with its Doric columns and armed security guards and 10-ton safe doors and all-pervasive security cameras, is designed specifically to project an image of absolute impenetrability. “You have entrusted us with the storage of your wealth,” the bank’s existence says, “and we have gone to great lengths to ensure that it will be protected. You may sleep soundly.”
But when capital loses its physicality, what are banks even protecting? It’s not a coincidence that we’re seeing a decline in physical Bonnie-and-Clyde bank robberies and a concurrent increase in cybercrime and e-fraud. When your money exists as digital ones and zeros rather than physically and behind a vault door, for a criminal to get at it through the former route entails less risk and higher reward than the latter. The advent of such tools as e-banking and apps that let you deposit checks by taking a picture of them with your phone show that even institutional banks understand this. When’s the last time you had “go to bank” on your to-do list?
And now, for something completely different: the singularly 21st century rise of purely mobile banking services that have never operated on the brick-and-mortar model and probably never will. By bypassing the bureaucracy and hidden fees of traditional banks, these upstarts purport to give you greater control over your money. Here are a few of the most prominent:
Simple was among the first. The app is streamlined and straightforward. It provides neat tools that allow you to break your funds down and allocate them as needed. Say you want to earmark a portion of your income for savings, or for a trip to Belize; Simple doles out deposits into these categories and provides you with more info than a comprehensive net balance does; namely, how much you have that’s “safe to spend” outside of funds allocated for your various goals. In addition to charging low fees, Simple also breaks down your spending into categories and allows you to visualize the types of things your money goes to and adjust accordingly.
However, Simple is a part of the BBVA Compass Group, and so are not an actual independent bank but a conduit for your funds to reach the coffers of one of the largest multinational financial companies in the world. It’s like the dynamic between Naked Juice and PepsiCo, the juice-maker’s parent company – a brand extension that opens up new market territory with less competition. The juice is aggressively marketed as a healthy alternative to other soft drinks, but at the end of the day the money you pay for that bottle of Green Machine juice still ends up in the hands of one of the most active drivers of the global obesity epidemic.
In contrast, GoBank is another upstart touting myriad advantages over big banking that is itself an independent bank, backed by the FDIC. It charges no overdraft fees, has a huge network of feeless ATMs around the country, allows you to easily pay bills and transfer money, and, getting another leg up on Simple, allows you to deposit cash into your account at participating Wal-Mart stores. All-in-all, this is a pretty attractive option.
The benefits of using these and other firms like Moven are clear: greater personal control of your finances, less obfuscation surrounding terms and conditions, access to tools that help you understand and control your spending, and the freedom of not having to deal with the bureaucratic madness that characterizes big banks. Bankers, like car mechanics, are necessary evils: nobody ever wants to interact with them but, if they want to keep moving, must. Mobile banking can make that process a little less painless.
But what about the risks? The main one is straightforward, and counterintuitive when considering the above facts: mobile banks are not large institutional banks. They don’t have the ostensible benefit of being “too big to fail” (although the events of 2008 showed us that this concept really only holds true at the expense of trillions of your tax dollars). They are subject to the whims and fluctuations of the tech industry. One day you’re Tom Anderson, sitting pretty atop your social media empire. And the next day Mark Zuckerberg comes along and sweeps the whole thing out from under you. The one thing that can be said about the future with absolute certainty is that nobody knows precisely what it will bring.
And, as a personal testimonial, I attempted to shift my everyday banking needs to GoBank and the result was, frankly, disastrous. After a month of trying to get my account up and running, I threw in the towel and went back to my big, evil, commercial bank. So while they do offer a wide range of possibilities, they may not be at a level of operational functionality to compete with the big dogs.
Think of it as a boxing match. In one corner you’ve got the dumb, lumbering behemoth who, despite some major recent setbacks, remains undefeated and isn’t going anywhere anytime soon. In the other corner you’ve got the scrawny newcomer whose skill in the ring is largely unproven. But, he’s got a lot going for him: he’s smart, he’s tactically canny, and he fully understands his opponent’s weaknesses and knows how to exploit them to his advantage. I’ve given you the odds, but I’m not going to recommend that you place your bet on one over the other. As dictated by the millennial zeitgeist, the choice of where to keep your fairy dust is up to you.
I would like to note in addition that, though GoBank was a less-than-optimal experience, I have had far greater success with firms in another aspect of the burgeoning “Financial Technology” (or FinTech for those who like truncated buzzwords) industry: mobile investing platforms, specifically RobinHood and Acorns. But that’s another story for another time.