As a thought exercise, I’ve been wondering if it is possible, these days, to do without a bank at all and still have a relatively normal life. And by normal, I don’t mean keeping cash under the mattress. I’m talking about a proper banking relationship, but without the bank account.
It is simple to combine online services and products to create new things outside the financial services industry: Generation-C does it all the time. My question is whether it is possible to mashup a range of financial services things both in the virtual and real world to create the capabilities you’d normally open an account to get.
In considering this question, I examined my own wallet. I carry a debit card, which accesses my current account. I have several credit cards, which I use regularly in order to get reward points to use for free flights. My current account in the UK talks to my current account in Australia so I can make international payments. And there are a range of direct debits which come out of these to support the things I do in my life.
Let me ignore other kinds of loan products for now. You don’t need a full-on banking relationship to get them any more, anyway.
To the plastic first. I can give up my credit cards, because the only reason I have them is to get points. The points are nice, I suppose, but not critical to my lifestyle. When I want to spend, I’m spending my own money. So the real question is getting a card that I can stick into a POS machine or an ATM.
Conveniently, prepaid debit cards do that job pretty well. I don’t need an account relationship to get one (I can even pick one up at the local newsagent) and they work at POS and at ATMS, assuming there is money in the account. Most can be topped up by cash or by funds transfer.
Now, a prepaid card is pretty basic. If there are online features, they go to having an account balance and top up facility online. I’m wanting something more substantial for my account servicing and to keep track of the money I have.
Wesabe, Mint, and any other of next generation account aggregation and financial management products fit that bill. Frankly (I’ve said to before) it is likely that I’ll get a superior experience on one of these than on a bank native IB platform. The wisdom of crowds is a powerful feature.
I don’t, however, store all my money in my current account, so I’m not going to put it all in a prepaid card either, even with the additional features I get from an account aggregator. For a start, it doesn’t earn interest, and, more importantly, it can be lost. P2P loans platforms (such as Zopa, in the UK)address both of these things. By using my excess balances to fund a basket of loans, I can get a higher rate of interest than I’d normally get on my current account. When I factor in the default rate I am likely to expect, I will still have a savings product that creates a pretty high return.
The downside, naturally, is that my money is pretty tied up. For the duration of the loan, in fact. Day to day, I need something more for the funds I hold in reserve (and use, obviously) to top up my prepaid card.
Here’s where alternative payment systems, such as PayPal come in. Let us ignore the fact that they have an EU wide banking licence for a moment, and consider the benefits that PayPal gives me. For a start, I can use it to top up my prepaid card, so I can get money out of the PayPal account pretty easily. Secondly, I can do an instantaneous international transfer, something I can’t do even when I pay a traditional bank.
Even getting my salary is possible in this model. Most prepaid cards support BACS (the UK payments system used in general by payroll). So, even if I’m not paid in cash (obviously I’m not, at Lloyds TSB), I can be paid without a bank account.
So summing all this up, for a basic financial relationship, it does appear that it is possible to mash things up and do without a bank. An implication of that is that the unbanked, whom we all imagine use cash pretty much exclusively, need not do so, assuming they have pretty good online access.
On the other hand, I’m not planning to replace my banking relationships any time soon. Why? Because whilst it might be possible to do basic financial services without a bank, it is clearly going to take a lot of time to do so. That time I don’t have, and anyway, my financial relationships aren’t basic.
But it is interesting to think about, no?