Are banks the new taxis?

Does anyone remember hailing a cab? Before the taxi industry threw up a Hail Mary to save its indefensible monopoly on moving people around?

The argument at the time was that taxis were regulated - had to be licensed - and it's just not fair that the free market innovated around that entire model. Ultimately, passengers trusted Uber, Lyft, and others to move them safely, to process payments effectively, and to respond to customer demands. Regulation was left in the dust, and taxis were left driving in circles, fuming until they ran out of gas.

You Talkin' To Me?

In the world of banking, a similar revolution is taking place. The strategic moat that comes with being a regulated bank, participating in the alchemy of finance that is fractional reserve banking, where deposits are not deposits at all - well, banks are hoping it's worth more than a taxi license today.

For example - what if a financial institution didn't need to be regulated so heavily because it didn't extend loans that weren't already financed by assets? What if this institution held your funds as deposits that belong to you, every single dollar, sitting there waiting for you to withdraw or spend (including so-called stablecoins)? Not long ago, this idea would have been nonsensical. Too expensive. Too inefficient. But now there is a realization that profits can be made in banking without the fractional reserve model. Or a banking license.

In the taxi world, the new car smell of technology and innovation brought customers to the passenger door of tech companies arranging rides, and the reputation of these firms gave people confidence to use the service and never look back. And regulation didn't even know where to start. For new payment service providers, we will see known technology companies enter with all kinds of incentives to bring customers to their virtual door...in exchange for profitable transaction data and the chance to up-sell value-added services. And with a right-sized regulatory model in place to accommodate them.

Objects in the rear view mirror...

Banks will realize that it doesn't take a license to provide customers with a convenient, innovative, flexible, and even flashy way to pay. And customers may be willing to separate their investing from their saving from their payments. From fractional reserve banking to fractured service lines. And payments could ultimately be un-moored from banking forever.

Banks will probably continue thinking the strategic advantage is making money fractionally...while payment service providers will be making money actually.

And existing bank payment solutions will now have to compete with a worthy adversary - nimble technology companies with creative solutions and deep pockets.

All hail the free market.