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Banking fifty years from now …


I was trying to think about what life would be like in fifty years. This was prompted by the imminent launch of Virgin Galactic.

My guess is that space flight will be commonplace within fifty years.

The reason I say this is that my parents thought it phantasmagorical
for people to be able to fly between cities. This was only fifty years
ago, when the passenger aircraft industry was starting to take off.
Now, many of us hop on and off aircraft as though they are buses or
trains, and many children have travelled further in their short
lifetimes than their grandparents travelled in the whole of theirs.

For this reason I suspect that, in about fifty years, space flight will
be as easy for citizens as first class travel is today. And in a
hundred years, assuming we have not blown the planet to smithereens, we
will see general space flight being as commonplace as today’s air
travel.

So, what will the world of banking look like in that space era?

I’ve obviously no idea but I do ask one question: will it be based upon computers?

Maybe, but probably not as we think of them today.

We all assume the future is electronic. It does not have to be.

Our challenge is that when we think of the future, we are confined by
our current thinking. Today, that means that we all immediately assume
more computing, more processing, more digitisation.

Going back half a century however, the computer was just emerging.
There was no electronification. Banking services were performed through
manual ledger accounts of credits and debits. Everything was manual,
over the counter, face-to-face.

Back then, credit and debit cards did not exist, SWIFT was unheard and
unthought of, derivatives were unknown and investment markets were
based upon paper stocks.

This article, by Peter Day of the BBC, sets the scene rather well:

“Every evening, my father (a Midland Bank manager) would
walk the 20 yards from the bank front door to ours, come in, sit down,
and start the daily ritual of checking through the cheques. He'd thumb
through every one of his customers' cleared cheques, sent overnight in
the big branch postal packet from London. He'd know every regular
payment every customer made – and when there was a sudden irregularity.
Little had changed since Britain's national joint stock banks emerged
in the mid 1800s.”

The article goes on to describe how technology has changed the world of
banking.  This began fifty years ago, as described in a similar article
by research firm SRI International:

“In 1950, the Bank of America asked SRI to assess the
possibility of developing electronic computers that could take over the
labor-intensive banking tasks of handling checks and balancing
accounts. The creation of branch offices and the rapidly increasing
number of checks being used by a growing clientele threatened to
overwhelm the existing manual processing and record keeping.”

How did bankers think about the future of banking back then?

Well, there was little focus upon ‘the future of banking’ fifty years ago. It was more about the ‘here and now’ of banking.

Fifty years later, we have stock markets busting, corporate debt and
subprime mortgage defaults, billions made and lost every day on global
stock markets, and customers dealing with all of their own payments
online and on their mobile telephones.

How times have changed.

In just fifty years.

Fifty years ago, money was revered and flying was a luxury.

Today, money is trash, and flying is a commodity.

Money is trash?

Sure.

The fact is we no longer know the value of money because we no longer
see it as being of value. The availability of credit, until recently,
meant that some folks leveraged to the hilt.  As a result, the idea of
money was made worthless.

Think about the example of Diane McLeod in America.

In an article last week in the New York Times headlines
“Given a Shovel, Americans Dig Deeper Into Debt”, the pitiful Diane
describes how the debt firm calls twenty times a day as she juggles two
mortgages, along with car loans and revolving credit card debt. She’s a
dream customer for lending, but is now living a nightmare.

Is she a sad case of predatory lending or an irresponsible customer who should have known better?
 
You decide.

The point of the article for me is that it demonstrates that the value
of money has been lost somewhere. Otherwise, how could someone with so
little,  borrow so much?

Maybe it is because money is just electronic digits, unseen and
intangible?  Money no longer has that tactile feel of crisp notes that
demonstrates its value to you in a physical form, and so we just play
with it as though it is a game.

Equally, this loss of seeing the value of money is not just down
to individuals, but also to corporates and even banks. Just look at the
scramble to shore up bank's capital ratios to realise how significantly
banks were leveraged.  Equally, why woudl we need Basel II and the
Capital Requirements Directive if we could balance the books
effectively?  This is an issue the European Union is threatening to
regulate even more stringently.

So, it is the balance we are correcting today. For individuals,
rebalancing their borrowing, and the same for their bankers. 
Rebalancing and reviving the value of money.

So, fifty years from now, when space flight is common and the world has
some form of new order. Fifty years from now, when China dominates
trade, and India, Russia and Indonesia have taken over from the UK,
France, Italy and Germany in the G8.  What will banking look like?

It’ll probably be organic.

Banking won’t be a physical entity that people consciously deal with.

Money will just be part of trade.

It will work on the basis of only allowing you to do what is within scope. 

For example, as you deal with needs, wants and desires, your in-built
sensors will determine affordability, suitability and appropriateness.
Organically, your wireless networking identity will connect you with
what you can and cannot buy, sell, afford and borrow. This will operate
individually and commercially. The result will be that banks will be
integrated into global personal and corporate activities as an enabler
of trust, recognised for the free flow of trade through affordable
liquidity.

This will be facilitated through organic computing, something that is already under development.

Organic computing is defined
as conceptual framework “that will form the basis for understanding the
organic structure of Life on its molecular, organismic, cognitive and
societal levels, and for building an organically structured information
technology. A system is called organic if all of its components and
subsystems are well coordinated in a purposeful manner.”

Could it be true? Could banking become biological?

Possibly.

But would it be a progression?

After all, just because we evolve into space, you still get folks who want to join the 100 mile high club.

About Chris M Skinner

Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, the Finanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here...

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