Innovation? Humbug!

Bill Gates said in the early 1990s that “we need banking but we don’t need banks anymore”. He was wrong.

I hosted a banking seminar in the late 1990s where David Llewellyn, a Professor of Money, stood up and stated that “there will be more change in the next five years in banking than we’ve seen in the last fifty”. He was wrong.

In 2009, reflecting on the financial crisis, Paul Volker, the former head of the Federal Reserve, said “the ATM has been the only useful innovation in banking for the past twenty years”. He was wrong.

But at the time, they were all right in their own way.

What is going on here is that old nugget: we overestimate the speed of technological change and underestimate the impact (Amara’s Law, named after Roy Amara who coined this back in the 1970s).

I guess we have seen this pretty often in the investment and business world. The internet boom and bust being a good example. We overestimated how fast the internet would take over business, lost a load and then wished we had a stake in Amazon. It’s pretty true of many other areas too, but has never been true in banking. In banking, it’s boring. Nothing much changes …

… until now.

This hit home for me when I received the press release of First Direct’s thirtieth birthday the other day. The bank launched on 1st October 1989. Back then, it was an innovation from Midland Bank to create Britain’s first branchless bank using call centre technology. That was huge innovation back then and, even today, First Direct is voted consistently in the top for customer service for any UK business, because its business model is built for remote relationships.

However, thirty years ago … just thirty years ago … the press release described the world like so:

Thirty years ago, many people still had rotary phones, so a 24/7 telephone bank was revolutionary. If you wanted to interact with your bank you did it in a branch, with banks only opening between 9:30 and 3:30 and closing altogether at weekends. Back then branch managers still made the key decisions on who could have a loan or a mortgage, and there were long waits to get either. Cheques were how most people paid people and services, with more long queues in branches on Fridays. ATMs were a rarity, and mobile phones were in their infancy (and the size of a house brick!).

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