Throughout history, there have been certain industries, such as the banking sector, that society has always assumed to be safe from change and modernisation. After all, individuals and businesses are always going to rely on the banks to store money and accrue interest. Meanwhile, they will always turn to the banks for loans to make acquisitions, right?
What was once considered a sure-thing is now actually being questioned. The likes of Google (NASDAQ: GOOG), Apple (NASDAQ: AAPL) and eBay's (NASDAQ: EBAY) PayPal business could, in fact, pose as a future threat to the very fundamentals behind the services that banks, such as Westpac Banking Corporation (ASX: WBC), offer.
Google has developed a new product known as 'Google Wallet' which runs off near field communication (NFC) technology. The product allows users to simply swipe their smartphones over an Eftpos terminal to make payment. According to Phil Chronican, ANZ's (ASX: ANZ) CEO of Australia, Google Wallet at this stage merely piggy-backs off the current payment infrastructure provided by the banks and card providers, such as Visa and MasterCard. However, due to the rapidly changing visions of the digital giants, Chronican suggests that the question is now "whether the way they see the world today is going to be different in three to four years' time. That's why we have to be concerned".
Should these companies push the digital wallet concept further, the need for actual cash could become obsolete, whereby we could become a cashless society. What's more, without the general need for cash, the relationship held between the banks and customers could lose its importance, which would pose as a very large problem for the banks.
ANZ and Commonwealth Bank of Australia (ASX: CBA) have both recognised this threat, and are looking at ways to modernise their systems, however, Westpac and National Australia Bank (ASX: NAB) are currently lagging behind on that front and will need to acknowledge this as a legitimate threat and act accordingly. It is believed that if banks are to remain successful in the future, they will have to change their business models and offer superior customer service.
Currently, each of the banks still appear to be quite expensive investment options, despite having fallen in value significantly in the last month.
Foolish Takeaway:
Although there haven't yet been signs that the tech giants are necessarily trying to take business from the banks, it is certainly a real threat – much like online retailers have stolen enormous levels of market share from brick and mortar retailers.
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Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned in this article.
