Why Are Banks Valuable?

Some Perspective on Banking

We need to change our definition of banking to give it more perspective.

This might sound strange, but the conventional definition of a bank is fairly limited, especially in the common use. When we hear the word bank, we think only of the physical institution, a building with tellers and a vault and usually customers making deposits or withdrawals. We think of the way a bank looks to us, and we think of the way we interact with it when we do.

But banks are more than that. Much more.

We can call banks what they are: community finance centers. Resource hubs for the population; an incredibly valuable economic functionary as well a useful barometer of overall economic health in a country or region.

If that seems expansive, it shouldn’t. The U.S. banking system alone has trillions in assets and supports the world’s largest economies. Local banks in smaller areas support community investments and inject much-needed capital into business ventures that can build towns and neighborhoods from the ground up. According to the FDIC, community banks are the lifeline to entrepreneurs and small enterprises of all types; local and regional banks hold 43% of small loans for businesses and farms. They’re vital in rural and small-town communities, with massive shares of deposits in over a thousand U.S. counties.

In short, if you want to build better, longer-lasting, healthy communities across the United States, your backbone is going to be banking. If you want to finance the dreams and businesses of tomorrow concretely, the method is through banking. If you want to build a genuine sense of community and economic productivity, the route is through banking. And though banking has changed over the years, particularly in its technological capabilities, its principles have remained the same for ages.

What is Modern Banking?

If we’re to cast off the image of banks as dusty institutions focused only on numbers, we need to approach the problem with a modern lens. What is banking today? What forces have shaped banking in the 21st century, and where is it going? What technologies enable banks to remain competitive in a world that is constantly evolving, with currencies that fluctuate in value and use?

Banks have been around for as long as there have been coins and assets—we’re talking millennia here—and though the technology evolves the idea remains the same. A bank serves customers by storing their assets in varying percentages and degrees and lending them out to customers, usually charging interest. The finances and loan system form a circle of local investment that build out the economy in micro and macro ways.

Modern banking has taken this core principle and expanded it to include ideas like contextual banking, or the personalization of financial products and advice offered through banks and their digital platforms. Where once banks could feel stifling due to their terms and regulations, modern technology has found ways to free banking from its image and allowed it to fund more investments and more financial options for communities than ever before.

Over the years, many small businesses and entrepreneurs have felt abandoned or left out in the cold by conventional banking, forgotten due to their size. Contextual and personalized banking platforms have enabled not only financing but rich data-centric networks to positively influence community uptake and product adoption. Personalized banking has brought the personal back to an industry that was heavily reliant on finances and objective math to make decisions and investments. For the modern entrepreneur, this is a godsend.

Now, more than ever, banks provide security of assets and investments to customers who need stability. Cybersecurity and asset protection have only grown more sophisticated over time, reaching the point where money is safer than at any other time in history. Gone are the days of storing money in your mattress and hoping for the best, or worrying if bank runs mean you’ll lose everything due to seemingly-random market fluctuations. The unbanked population continues to decline around the world due to a heavier investment focus.

If you want stability and security for your nest egg and financial protection for yourself and your family, modern banking has rapidly scaled up to be approachable, useful, and incredibly secure. Banking, to further expand our already expanded definition, now encompasses a potential financial bridge to the future, which keeps individuals, families, and communities safe from the downfalls of a modern connected world.

For those living in different countries, the ability to transfer money easily abroad and back again means global separation is smaller than ever. The digital world has enabled families to improve the quality of life for their children by sending them to better schools in different countries, with mechanisms of payment and fees no longer the onerous barriers they used to be. Banking is no longer bound by geography, and the interoperability of institutions and swiftness of transactions mean customers aren’t bound by those conventional rules, either—payment has been liberated.

With all of these changes undergone, what new remains for banking? What could change that hasn’t already changed? Most importantly: what should we look forward to?

What is the Future of Banking?

The future of banking is personalization and customization of assets, products, and platforms. Personalized banking means a greater emphasis on flexibility, variability, and choices for the individual, all while retaining a broader community focus. Data-driven decisions now run in parallel to personal touches and individualized solutions. Financial products are enabled by more information than ever before, and customers have ala carte choices in their personal banking preferences.

This will only continue, steadily upward.

Transactions will get faster, security will increase, and digital assets will be more manageable than even now. Communities will harness the data from their local and regional banking centers and make informed investments that benefit their entire infrastructure. Development will be more reliable, safer, and driven by a larger economic focus that doesn’t forget the smaller communities and doesn’t shirk entrepreneurs just because they don’t fit into the classic paradigm. Microfinance will continue and grow as a market; those same dreams will be financed at varying scales and will likely provide opportunities previously unimagined, especially in rural areas and developing nations that were previously unbanked.

While the core principles of banking remain the same, the technology and modes of operation have evolved with the times and have often evolved other industries alongside it, pulling them all into the future. The value of banking is the value of people, and the value of investing in human relationships is the future. Any definition of banking, if it’s to be complete, includes these values and builds on them as communities and their banking take focus.