Community banks—at least in my experience—provide banking services to the communities where their leaders and employees live and work. On the consumer side of the equation, they provide home loans, car loans, credit cards, and other deposit and electronic banking services. On the business side, they provide access to small business loans, deposit products, and cash management services. While banks generally, and community banks specifically, seem to provide a valuable service for their communities, the number of banks in the Unites States continues to decrease, in part due to lack of new banks and also due to industry consolidation through mergers. From 1992 to 2018, the number of banks in the US declined by over 61% from 13,935 to 5,406. In addition to this trend, non-bank entitieshave entered the industry in larger numbers and have put additional pressure on the banking industry to compete and stay relevant.
This article at Worldfinance.com makes an argument that I largely agree with. Community banks (more-so than large banks) fill a void by providing funding to small and medium sized businesses that are overlooked by bigger banks, either because they are not as profitable as larger businesses, or because they do not appear as viable, stable, or scalable as bigger businesses. This is where community banks flourish because they understand the local economy, opportunities, and what will work in the area. They also have a vested interest in seeing local business succeed. Consumer products, on the other hand, are becoming commoditized in the sense that technology has allowed many new players in the field for basic banking services. Because of the rise in non-banks providing financial services, what will the banking industry look like in another 10 or 20 or 30 years?
Brett King, a well-known and outspoken technologist who has been preaching for innovation in the banking industry for a number of years, and has written several bookspredicting changes in the industry, sees banking happening largely without branches in the future. Banking, according to King, will be imbedded in consumers’ everyday lives and tool and they won’t need to visit—or even identify with—a traditional bank. In order to succeed, banks will need to adopt this reality and provide “frictionless” banking where people can get banking services seamlessly and electronically, in a way that provides convenience.
I think there will be a niche for community banking for many years to come, but I agree with Brett King that the industry will continue to consolidate as a large number of banks will refuse to move beyond traditional banking to the way of the future.
When Thomas Friedman wrote the world was flat in 2005, he was explaining forces at work that were increasing the pace of globalism and making people and technology around the world more accessible. When Richard Florida wrote a counterargument in the Atlantic Monthlyin 2005, he argued that the world was “spiky” and that technology, innovation, and opportunity were all clustered around certain, urban centers around the world and opportunity was not created equally.
I am wondering if they are both right, but for different reasons than they intended. First, maybe the world really is flat because information, opportunity, and technology are available at our fingertips, and the pace of technological advances are mind-boggling. It is easier to connect and do business with people from all over the world than it ever has been, and it gets simpler every day. However, maybe the world is spiky because—according to Richard Florida—talent, innovation, and investment are concentrated in specific urban centers that isolate and leave behind the rest of the world. The rest of the world that does not have the capacity or the resources to keep up and so are left in the valleys between the spikes.
I think the reality is a combination of the two arguments. I think the world really is flat for the reasons Friedman describes. The internet connects people. Technology makes communication and collaboration simpler than ever. These resources improve efficiency and profitability, and the entire world is available to anyone who decides to go—physically or electronically—seek his or her fortune. However, the maybe the world being flat is really contributing to Florida’s claim that the world is really spiky. Instead of this technology providing access to anyone wherever he or she happens to live, maybe what is happening is the flat world provides the access to information that is the avenue for innovators and smart people to travel from other places in the world to the innovation centers. Maybe knowledge, access, and travel allow those innovators to find and relocate to maximize their own talent and opportunity. Maybe the world being flat isn’t as much about innovate where you’re from, but instead find where you can maximize your talents and relocate so you can be most effective. It also seems to be about money and access to capital, and it makes sense again that people are drawn to where the opportunity—money and capital in this case—is. The forces Friedman describes to explain the world flattening all seem reasonable, but they are not distributed equally across the globe. For example, the proliferation of internet, cell phones, access to information, etc. have not been distributed equally around the world. Instead, these technologies are used where there is money for private and government investment, where there is a technology and information friendly political environment, and where there is incentive to invest. This seems like it spikes, rather than flattens the world.
Nick Bostrom gave a TED Talk in 2015 where he talked about the possibility of computers becoming smarter than humans. I’m not sure his premise promotes a flat world. Instead, it seems like computers becoming smarter than humans might accelerate the pace of computers absorbing jobs for humans. Whatever the reality, access to information and the global community has the potential to compress the world and make successful connections abroad easier. The challenge will be to bring others with us when we maximize the benefit of a flat world.