Here’s Why Banking’s Future Belongs to Tech Stocks

Younger generations are already warm to the idea of heavily digital, branchless banking

Say hello to the the First National Bank of Apple.

A recent Accenture (ACN) survey indicated that younger consumers would be happy to start banking via their favorite technology companies. Specifically, “72 percent of consumers age 18 to 34 would be ‘likely’ or ‘very likely’ to bank with at least one technology, telecommunications, retail, or shipping/postal company that they do business with if they offered banking services.”

So, who would the players be?

Well, 40% of consumers ages 18 to 34 said they would consider banking with Google (GOOG), 37% with Amazon (AMZN) and 34% with Apple (AAPL). In the 35-to-54 age bracket, the numbers are also pretty substantial, with at least 20% of respondents comfortable with all three tech stocks as a possible bank of choice.

On the surface, the idea might sound a bit crazy. What the heck does Apple know about second mortgages or jumbo CDs?

But when you dig into the details of the Accenture survey, it’s clear that the affinity to an AAPL bank isn’t simply out of brand loyalty. It’s about the rise of a cashless society and the reliance on mobile and digital payments for most of the transactions that younger Americans are making.

Accenture discovered that 39% of consumers ages 18 to 34 would switch to a “branchless” bank, as would 29% of 35- to 55-year-old Americans. That’s largely because, as one Accenture exec puts it, “Tomorrow’s consumer is coming of age with a very different perception of what a bank could be.”

It’s worth considering: What exactly does a bank do now vs. what it did 50 years ago, and how does technology play a role?

Branchless Banking Already a Reality 

We have already seen a global shift thanks to the rise of a cashless society.

As I wrote in a recent recommendation of payments processor Visa (V), debit cards and online banking are the norm. And as a recent VoucherCloud survey shows, 57% of Americans report “never” carrying cash largely because of the convenience and security that digital payments provide.

And heck, for those who do occasional want cash, you can always go to an ATM.

Ask yourself what services provided by your local bank branch are truly necessary and cannot be done digitally or by ATM … and I think you’ll agree that they are few and far between.

For my part, the only times in the past decade that I have entered a physical branch and talked with a real person was either to open an account, close an account or to get a cashier’s check so I could close on my house.

Making it easy to open and close accounts online would cut my needs for an in-branch visit down to just one single occurrence since 2004.

Sure, it’s hard to have a serious conversation with a retirement planner via text message, and I certainly wouldn’t feel comfortable showing up at closing with just an email on my iPhone. But considering the relative rarity of these occurrences even for the well-to-do and the high number of people who either can’t or don’t want to buy a house, there is a broad customer base out there for branchless banking — provided by Apple, Google or anyone else.

Heck, just consider the prepaid debit card market. A 2012 report by MasterCard (MA) predicted the prepaid card market will grow at a 22% annual rate through 2017 — reaching a massive $822 billion!

These are simply plastic cards loaded up with digital dollars, without any banking services or complex lending associated with the accounts.

So if you’re AAPL, why not allow customers to put that money on an iPhone or iPad instead an enjoy the per-swipe fees that Visa, MasterCard and American Express (AXP) are currently enjoying from prepaid debit card customers?

Heavily Internet-Based Banking Already Exists

Now, given the intense regulatory structure around banks and financial products, it might not be an easy thing for Google or Apple to jump into digital banking.

However, there are already some important precedents to note that indicate we are well on our way to the Bank of Apple.

Consider eBay (EBAY) and its fast-growing PayPal mobile payments arm, which processed $180 billion in total payments last year — $27 billion of which were on mobile devices. Then there are upstarts including Google Wallet, which allows users to send money as an attachment in Gmail.

Beyond the mobile plays that already are on smartphones and tablets, though, there are branchless banks like EverBank Financial (EVER) and BofI Holding (BOFI), which both operate traditional banks with mortgage lending and investment services despite being largely Internet-based financial services companies.

So before you dismiss the idea of the First National Bank of Apple out of hand, simply connect the dots: businesses now are already offering consumer banking services without physical locations, and frequently on mobile devices. Companies like Apple and Google already dominate the device market with iPhone and Android technology, so all they have to do is start offering the service to the millions of Americans who are open to the idea of banking via a tech company instead of a conventional financial company.

With tens of billions of dollars at their disposal and a will to own every element of the modern mobile experience, you can bet Apple and Google are already thinking about the next generation in digital banking.

Jeff Reeves is the editor of and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at or follow him on Twitter via @JeffReevesIP

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