It is believed that the first form of banking and financing dated back to the neolithic period (8000 B.C.). It would be reasonable to imagine that early forms of banking involved the lending out of resources such as grains, crops and seeds.
What really happens to your money when you put it in a bank?
Early banking systems allowed people to store things of value such as gold and silver. Humans have understood that just storing money and leaving it to lay around is an absolute waste of an opportunity.
Bankers realize that its customers do not withdraw all their money at once. And even if they did, these would be a significantly small proportion of its customers.
The concept of investing was born. Bankers realized that they could loan out the money in their store to business ventures and collect an interest on it.
In the new millennium, we have witnessed the collapse of large finance institutions in the wake of the Great Recession of 2008.
Our trust in financial institutions have wavered. So what really is the role of banks and financial institutions in the modern era?
Today’s financial institutions are seen as money making unicorns where you go to work and get rich.
When banks and financial institutions were more humble, they had a more noble purpose of allocating resources to ventures that added real value to society. They were stewards of resources.
Some of these loans gave poor farmers a chance to scale up their farms, giving them access to seeds, workers and machinery. Lending rates back then were more humble at 6-7% and bankers earned about 3% of the spread.
The transition of subsistence agriculture to large farms that provided more food for people was enabled by banks.
And that should remain the sole purpose of banks, to identify ventures that substantially contribute to the development of society and prudently allocate resources to them. Fulfilling people’s dreams and lifting people out of poverty.
Banking in the modern era
Banking has continued to transform over the years, the introduction of ATMs by banks offered consumers a convenience since the 1960s, paving the way for an era of electronic banking.
With the synthesizing of digital applications, payment methods have changed, transforming the way consumers and businesses interact and social interactions. We are heading into the age of digital and cashless banking.