20 years ago in June 1997 the Centre for the study of financial innovation published a report called the Internet and financial services.
This report was the result of a series of working groups that had been set up to look at retail banking, personal finance, insurance, equity trading, regulation, payments, security and crime at the dawn of the Internet era. I was part of the team that created the input to the report (I was also part of the retail banking working group) and I’m eternally grateful to Andrew Hilton, the director of the centre, for having kicked off the process all the way back in 1996. I learned a lot from taking part in the working groups and from distilling input from a lot of different people in order to create input to the report. When I look at the things I wrote around that time, two things stand out to me. First of all, I was right about the likely impact of mobile phones because even in those far-off days with the first rudimentary SMS services in place, you could see that the mobile could be a very powerful new channel for financial services (although not even I could have imagined just how central it would become to the modern financial services industry)
Once each of the unremarkable acts we undertake in the course of the day—opening the front door, buying the groceries, hopping onto the bus—has been reconceived as a digital transaction, it tends to dematerialize.
Secondly I was wrong about digital television! I’d worked on a couple of digital television projects back in those days, including projects for delivering financial services and other information using digital television and I was sure that for many people the digital TV will become the easiest way to access rich financial services. But I did share the feeling of many people at those early roundtables that something unusual was happening and that the Internet would turn out to be a major and unpredictable driver of change. The executive summary of the report picked out for ways that the Internet might disrupt the financial services landscape as it stood then. More competition (and more transparency) to the benefit of new entrants, privileging suppliers with technology and digital marketing know-how and incumbents lacked, empowering customers by giving them direct access and removing geography as a constraint to financial services businesses. Remember this was long before the iPhone, WAP and the great financial crisis stop
The report correctly predicted that banking would move from branches to screens, that the personal finance market would sprout many direct suppliers, that equity markets will give retail investors access to prices and suchlike and that while the insurance industry might be slow to adopt new technology the elimination of geography would be a particular benefits to both wholesale and retail providers.
I note, interestingly, the report also said that the Internet might eventually provides a means for settling equity trades, a discussion researching since the arrival of bit coin and the block chain.
One other thing I found rather interesting about report is that it was confident about the ability of the technology to deliver security and clearly did not anticipate the failure of the market to implement it. Finally the report says that “regulation may be the key obstacle” and as time goes by it is becoming steadily more clear that it is regulation that will shape strategy over the coming years.
I was the chairman of the retail banking working group along with Paul Taylor from the financial Times, and a variety of well-informed and expert members including my old friend Thomas Carruthers who went on to launch X, Keith Gold from IBM who was very influential in helping me to think about the big picture relationship between technology and banking, representatives from both a few banks, lawyers, the BBC and something called Anderson consulting which no longer exists as far as I can tell from a quick Google.. I noticed that one of the conclusions of the retail banking working group was that there was an opportunity for banks to provide risk management services that “could eventually become a core business of Internet-based banks” and although I don’t remember who made that point most vigorously, whoever did at the beginning had a big influence on my thinking. The working group was right to say that “it is hard to overstate the potential impact of the Internet on retail banking in the UK” and I think, unless I’m misreading some of the comments, seen quite bullish on the ability of the existing banks to extend and embrace the digital revolution. I think at the time there was probably a lot of talk of new Internet only banks coming along and overthrowing the establish order, which really didn’t happen, so I imagine that sober voices must have steered the working group around my youthful enthusiasm for all things digital.