Why the prospects of the majority of banks, wordwide, is weak on long term
Banks’ shares are, traditionally, a very basic investment option on stock markets, because of their key role on every economy. Economies, all over the world, in the last centuries and in our modern era, based on banks. Without banks, a market and an economy cannot function.
In this article, I will present to you, why banks’ long term potential as an investment, is weak, and their shares can underperform even strongly, if we compare them with other sectors or major indices.
Banks in the past, was a very interesting and important investment option because of their key role in every economy; banks distribute money into the market, to companies, enterprises and consumers; banks are funding the markets, the businesses and no modern economy can function, can’t exist without banks.
Maybe today’s investors cannot imagine how banks can have weak potential and prospects in the future. As a long term investor and because investments must be long term in order to be successful, really long term, like at least of 10 years time horizon (or more), here I will analyze why banks will fade in such a time depth, as an investment option.
That will happen because of technology. Technology changes rapidly our world, in every sector. Banks could not be stay out of these changes. Till today, the banking function was executed through physical forms: money, banknotes and coins, have physical form and in order to handle money, we, the citizens all over the world, are doing deposits and withdrawals in banks. The businesses (and consumers) are receiving loans in order to make investments, to consume or whatever else. Till now, all over the world, there is a plethora of banks that intervene and function in this critical economic circuit. But…
I estimate that in the next ten or twenty years, and certainly in the next thirty years, the most of banks will be vanish, yes, will disappear. But why? Because technology, even nowadays, has permit as in many business sectors, similarly in banks sector, the functions and procedures to become electronically.
Year after year, money ceases to be in physical form and is being replaced by plastic money (debit/cash cards, electronic wallets etc.); even the citizens – depositors, when they’re going in banks to make a deposit/withdrawal, are using ATMs instead of a physical teller / cashier with an actual clerk to service them; all banking transactions can already be done and are being done, through e-banking – from our office or house comfort, we can do through internet apps, if not all, surely most of banking transactions; loans can be given to businesses and consumers, not in physical form of money but as an accounting transfer of non material money, to borrowers’ accounts.
Year after year the need of existing banks in physical forms, will cease and banks in physical stores, will reduced almost to zero.
Some of today’s existing banks will be transformed, as also others will emerge, as big international internet style banks, like Amazon is already in retail commerce. Progress in Robotics and Artificial Intelligence, will help in this process. In this fundamental change, the big majority of today’s banks, will cease to exist in the next 20 or 30 years. Because if they remain in physical form with stores, with big workforce etc, will have big costs and cannot be competitive.
The other banks that will emerge as Amazon style big internet banks, will have much lower operational costs, and thus, will be much more competitive: as examples, these internet style banks, they could offer a better return to depositors and could offer loans to borrowers with lower cost. These internet style banks, will be much more competitive than others that will not understand the changes, and soon the internet style banks will take other banks market shares, and will prevail, as Amazon prevailed to other, older, retailers that didn’t understood the changes and remained to physical stores with expensive operational costs.
So the future in 20 or 30 years, will have a small number of banks and those will be big internet style banks; the old ones, those that we know today, will be vanished.
Panayotis Sofianopoulos
Author of HERETIC INVESTOR
Find my book, HERETIC INVESTOR, here.
You can contact me at sofpan@yahoo.com
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