Mass disruption to financial services is coming

Robin Hood might be the most important company in the world

The next great technological disruption is going to be in banking and brokerages. It’s already underway and it’s going to put massive amounts of money into people’s pockets that was otherwise destined for banks.

That’s good and bad.

Strong banks have money to lend and that credit helps to grow the economy.

Bank fees are a different story. They’ve escalated to the point that consumers universally hate their banks. At the same time, interest on deposits has dwindled.

The part of the industry that’s prime for disruption is the fee-charging side. In the future you’re not going to be paying for bank account transactions and securities transactions. You’re also going to make money on your deposits.

Robin Hood is at the forefront. The company currently offers US customers zero-fee stock trading. Yesterday it made a move into banking and said it will pay 3% on all deposits in savings and checking accounts. That also includes no-fee checking and savings accounts with no minimums, ATM fees, penalty charges or foreign transaction fees.

There are already worries about regulators but it’s a problem that will be overcome.

Here’s co-founder Baiju Bhatt talking about it on CNBC. (skip to 2:20 for a hilarious moment when he thinks the audio is cut off).

Here’s what the future looks like: No fee everything.

That means the financial services sector is going to shrink dramatically in the next 10-20 years. The mutual fund industry is already getting crushed by extremely low-fee ETFs. Now the online brokers themselves are going to be squeezed.

But banks are the big fish. If someone like Robin Hood can do what Amazon did — grow for 15 years by operating on 0% margins — then that’s going to destroy the bottom lines of commercial banking.

It’s coming.