Banking—Not Banks—is the Future in B2B

As of the end of 2013, there are only 6,891 federally-insured banks in the United States. While that may seem like a lot, that number is actually down considerably in recent years from a peak of 18,000. And it’s trending downward. The number of U.S. banks dropped below 7,000 for the first time since federal regulators began to track this in 1934.

This leaves a very small number of banks controlling a very large share of financial assets in the United States. In 2010, just 10 financial institutions controlled 54% of financial assets—more than double what they held in 1990.

Taking it one step further, what were 37 banks in 1990, have merged into just four financial behemoths. Check out the chart below:

Chart of Bank Mergers Since 1990

Citigroup, JPMorgan Chase, Bank of America, and Wells Fargo now dominate the U.S. financial sector. So much so that startup banks have stopped popping up. The Bank of Bird-in-Hand in Pennsylvania is the first federally approved startup in almost three years. Competition holds banks accountable, but a local startup bank vs. Chase isn’t much of a competition at all.

The U.S. financial sector is not the only market that has seen a dramatic consolidation of banks.  According to Deutsche Bundesbank (the Central Bank of Germany) in this same time period, the number of German banks has dropped from more than 4,500 in 1990 to less than 2000.

Bill Gates wrote in his 1999 book, Business @ the Speed of Thought, “Banking is essential, banks are not.” If this is true—which I believe it is—then the trend pictured above is not a reason to be alarmed.

Banking is possible without traditional banks today. In fact, new types of financial service providers and “non-banks” have arrived on the scene and are bringing massive innovation to the sleepy traditional banking and financial sector. Companies like Fidor, Moven, Simple, Gobank, Bluebird, Jibun, and Traxpay are catalysts to change in banking, and how financial transactions are managed. Virtual, cloud-based, socially-oriented, community-driven, transparent, smart, highly customized, real-time, anytime, anyhow, anywhere banking are what make these new challengers different. The age of banking (not banks) is here—providing banking without branches and without borders.

It’s a stark picture to see that just four companies control all of the U.S. banking. These four have become the definition—and poster children—for “too big to fail.” And if trends are any indication, it’s only going to get more interesting in the next several years, as new digital banks and non-banks become the preferred way to do banking around the clock and around the world.

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