The retail banking industry relies strongly on barriers to entry, protecting its antiquated model and allowing it to achieve large amounts of returns on its capital over the long term. However, new technology is reducing barriers to entry and causing disruptions within the retail banking environment.

1. The Rise of Cryptocurrencies

The most well-known cryptocurrency is bitcoin, a digital asset and payment system released in 2009 as open source software. Each bitcoin has a fluctuating monetary value based on supply, demand and other nuanced economic factors, and can be exchanged for normal monetary denominations.

Cryptocurrencies such as bitcoin have created large disruptions within the retail banking environment, changing the way people transfer money and purchase goods and services. With these currencies, for example, it's possible to pay or transfer money overseas with nominal transaction fees. Traditionally, retail banks would need to conduct a wire transfer or similar process for a foreign transfer or payment, sometimes charging upwards of $35 a transfer. Cryptocurrencies do not charge these fees.

Additionally, if a consumer wishes to purchase a good online, he can do so with Bitcoin at a smaller transaction fee than if he were using a normal credit card. This easy transfer of value creates an incentive for consumers to hold their monetary funds in vehicles outside the retail banking industry, reducing the amount of cash on hand retail banks has to issue loans.

2. The Success of Peer-to-Peer Lending

Bitcoin and other cryptocurrencies are considered a peer-to-peer lending (P2P lending) medium, but not all such lending is done through cryptocurrencies. P2P lending is a loan type that rose out of consumers' needs for small personal loans that large retail banks didn't want to service.

Financial firms that offer P2P lending aggregate funds from unrelated individuals and then offer those funds as unsecured personal loans, often seen as too insignificant for retail banks. P2P lending has increased in popularity since 2007, with notable companies such as Lending Club issuing over $9 billion in total loans, going public as the first publicly traded P2P lender.

The success of companies such as Lending Club highlight the fact that P2P lending has become a legitimate alternative to traditional loans, and other P2P lenders are now offering real estate and small business loans, encroaching on borrowers who would normally seek traditional financing options with retail banks.

3. Unbundling Banking Services to Reduce Fees

The largest issue with retail banks is that they have many operating costs that they pass through to customers. Even simple expenses such as brick-and-mortar rent affect the fees associated with retail banking products. The rise in financial technology companies is reducing those fees by offering a streamlined service, both operationally and with product offerings.

Financial technology companies normally specialize in one specific type of lending or retail banking product, rather than offering a full suite of products. This allows them to remain agile and become dominant authorities in one service. Additionally, through the reliance on cloud infrastructure and online platforms, they can reduce their overall costs and often provide better customer service than retail banks.

Currency Cloud, for example, is a financial technology company that offers individuals and businesses better deals on foreign currency transactions. It's able to do this through specialization and low operating costs, reducing the fees that it charges. Furthermore, because of its specialized nature, it handles large volumes of foreign exchange trades, allowing it to achieve scale and receive favorable rates from its partner banks.

The company offers full transparency on its margins, believing that its low spread can attract consumers away from retail banks. While Currency Cloud isn't the only company unbundling services to reduce customer fees, it is a good example of the financial technology companies that are causing consumers to leave the traditional retail banking model.

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