Let’s do a quick review of the list of service businesses that have been disrupted by the internet.
Communications? No doubt.
Media? We could tell you stories.
Travel and tourism? They could tell you stories as well about how customers get information and book their own travel arrangements these days.
Banking? Hmm, there’s an interesting one. Upon further reflection, we’d have to conclude … no, not really.
It’s not that the internet has no presence in or influence over the banking industry. The U.S. Postal Service, which as a charter member of the communications sector has lost huge volumes to email, has also lost a lot to automated deductions for mortgage payments, bill payment through websites and elimination of paper account statements.
And it’s not that banking has been exempt from disruption. Indeed, the recent history of the industry has been a nearly uninterrupted procession of change, crisis and calamity. Some of it was driven by technology, from the drive-in to the ATM to banking by phone and website. Some of it was structural, as banks consolidated by the hundreds, hollowing out the market between the very small and the very large. Some of it was regulatory, such as the advent of interstate banking.
Some of it was also, to put it bluntly, self-inflicted, as banking careened from one credit debacle — oil-patch loans, Latin American lending, low-doc mortgages — to the next.
So there’s been no shortage of disruption, at least if you define that word by lots of activity. But if you’re using the term to imply the sort of upheaval seen in other sectors — new players using innovation to dislodge established businesses from their positions of dominance — then you’d have to leave banking off the disrupted list. Find a list of major banks, either nationally or in the local market, and compare it to lists from 25 years ago. You’ll find many of the same names on both, with one notable departure on the local side, the result of Washington Mutual’s self-immolation.
Interestingly, people were conjecturing about banking’s future well before disruption was a broad concept. At the International Monetary Conference in Seattle in 1995, Microsoft’s Bill Gates felt compelled to reassure the audience of bankers that he didn’t consider their companies to be dinosaurs and that Microsoft had no intention of doing what banks did.
A lot of bankers weren’t so sure, given Microsoft’s attempt to buy Intuit, the parent of Quicken. John Reed, at the time the chairman of what was then the nation’s biggest bank, Citibank, grumbled, “Ultimately, banking is going to be a line or two of application code in a big network.” Citibank is still around, albeit a bit bruised from the recession. Microsoft is still around, too, but the era that bankers feared about non-bank companies usurping their business never came to pass.
The reasons why are worth keeping in mind because the dream of peeling off pieces of banking never died. Whether it’s an entirely new system of money like Bitcoin, new payment systems through mobile devices and stored-value cards, peer-to-peer lending or capital-raising crowdsourcing ventures like Kickstarter, innovators look at the banking industry and see an enticing opportunity, figuring that it’s so big and stodgy that it’s overdue for disruption.
If it is, no one has succeeded in disrupting it. It takes a lot of time, capital and expertise to build a bank of sufficient size and market clout to be of any influence. Regulation is still a barrier to entry, but even those that have resolved that issue and gained admittance to the club haven’t been able to do more than grab some small niches.
Banks have fended off challenges before, sometimes by adopting technology before outsiders could use it to grab market share. They’ll have to again; they make too tempting a target to avoid a challenge. Someone somewhere is plotting yet another assault on the vault, because if banking is literally where the money is, there must be a way — figuratively — to grab some of it.
Monthly columnist Bill Virgin is the founder and owner of Northwest Newsletter Group, which publishes Washington Manufacturing Alert and Pacific Northwest Rail News.