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About Ken Tumin

Ken Tumin founded the Bank Deals Blog in 2005 and has been passionately covering the best deposit deals ever since. He is frequently referenced by The New York Times, The Wall Street Journal, and other publications as a top expert, but he is first and foremost a fellow deal seeker and member of the wonderful community of savers that frequents DepositAccounts.

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Can Internet Banks and Financial Services Replace the Megabanks?


We have seen the growth of internet banks over the last decade, and this has been beneficial to savers as we seek out the best deposit deals. However, the megabanks (Chase, Bank of America, Wells Fargo and Citi) have continued to grow larger. In 2011, they held 40 percent of all federally insured deposits. There has been considerable discussion about the government breaking up these big banks, but that may not be necessary if the internet’s influence grows as described in this article, “Can the Internet Replace Big Banks?” The article admits that the internet’s impact has been limited, but there are signs that it’s changing. According to the article:

We've seen digital technology disintermediate everything from record companies to university curriculum. Yet banking has remained rather immune to all this disruption.

Sure, ATMs and online banking may threaten the bank teller's union, but central banking's monopoly over money has hardly budged. Just like we have to get our food from real plants and animals, we have to get our money from real banks. Or at least it appears that way to most of us.

However, the rapidly changing digital economy is about to give banks a run for their money.

The article mostly focuses on the lending side of banking, but the real power of the big banks may reside on the deposit side. A useful critique of the article was done by this Andera blog post, “Can (Blank) Replace Big Banks?” It claimed that:

The evolution of banking is not a technology problem, it's a regulation problem, and it's a business problem.

The Andera blog post also pointed out the importance of deposit safety:

We can check balances and transfer money exclusively through online and mobile banking. We don't need a bank on every corner anymore, in fact, we don't necessarily need banks for convenience all. But we do need safety for our savings, and that is one advantage that banks still maintain.

Even though we may not need as many branches, I think most people still want to have a nearby brick-and-mortar bank branch. As I described in this blog post and as readers described in the comments, there are several banking transactions that require a branch visit.

Community banks and credit unions can meet the need of having a local brick-and-mortar office, and they also provide the same deposit insurance as the big banks. However, big banks currently have an advantage over the community banks and credit unions. That’s the too-big-to-fail status. In my blog post which I asked Should the Megabanks Be Broken Up?, I gave the following quote from a Washington Post opinion piece written by George Will:

there is a silent subsidy - an unfair competitive advantage relative to community banks - inherent in being deemed by the government, implicitly but clearly, too big to fail."

So new internet technology and services may not be enough to make significant changes in the composition of the banking industry. New technology over the last decade hasn’t slowed the growth of the big banks, and it doesn’t look like that will change anytime soon.

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cactus   |     |   Comment #1
Going to be fun when some of these unregulated intermediaries run into trouble.
Anonymous   |     |   Comment #2
I've said it before and I'll say it again, the only usefulness of a B&M bank is their ability to provide a safe deposit box.  I hope other readers share my discust at the rampant opening of new bank branches, that do everything but provide a secure place for me to store important documents and physical assets. 
Anonymous   |     |   Comment #3
I for one do NOT share your disgust for brick and mortar banks.  They are certainly not all alike.  My bank provides free notary service and cashes my U.S. Savings bonds when they stop accruing interest for me, among providing other services for a minimal fee.  Let me see you do that at your Internet bank!
Anonymous   |     |   Comment #5
#3  You can send your bonds into the treasury dept and have an account created where you can do transactions.  You no longer have to worry about storing or losing them.  Notories can be found in many places (The one I use is at the UPS store). 


    I have gone into my bank once in the last 2 years to get a cashiers check for a home refi.  I do all my transactions via ATM.  I find it easier to deposit checks at the ATM's.  No paper forms to fill, no lines, no one in the bank trying to sell products and are available 7x24.  So you can close my branch but leave the ATM.  I would have to find a place for cashiers checks that I may need every 3 - 5 years.  Maybe the USPS could do that.  All my CD's and money markets are with internet banks (None of the big 3) or PenFEd.
Anonymous   |     |   Comment #4
a local branch may or may not be good.  they're a crapshoot.  unfortunatly its the institution behind it that may be rotten to the core and the local folks have their hands tied.  all the "megabanks" are lumped together as growing but citi has been shrinking for several years, the only balances they are growing is their credit card balances,   Their horrendous service and mishandling of accounts has lost them a significant share of customers.  They are still strong in NY, but their consistant stupidity witll bring that market down as well

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