The Bankers: Technology Redefines Banking

FROM precious metals to paper to “arranged electrons and photons which would move around the world at the speed of light,” money has indeed undergone a transformation that has change the world of banking.

Martin Mayer, the author of “the bankers,” a major best-sellers over twenty years ago, has once again put his imprint on the history of banking worldwide by coming out this year with a book that interprets the new world of bankers and banking, a world that has been changed beyond recognition by technology. His new book, “the next generation.” Undertakes the gargantuan task of explaining banking from its earliest recorded history to what if may metamorphose in the future.

The task is complicated; thus the book makes for complicated reading. To illustrate, Mayer moves from the 18th century on a page. Bankers and finance men no doubt would be terribly excited by this book because it offers interesting tidbits of the past as well as opens truly exciting possibilities in banking.

New World of Banking

Consider these possibilities in the new world of banking: a businessman leaves his home with nothing but a small plastic card.

That card contains his name, his address, the names of his family, his birth date, his occupation, his medical history and a host of other data normally found on an employment application form.

As he boards the metro rail, he gains entry with the card. As he buys his morning paper, he swipes it into the dispenser. As he lunches in an exclusive restaurant, he pays his bills with it. He buys stocks and derivatives and moves his accounts with it. He handles no cash or checks throughout the day. And even when he gets home, he can still purchase goods through his computer using the card. The card is called a “smart card,” and in a limited version in some countries, this is already a reality.

Banking Redefined

Martin Mayer declares that “banking, as the agglomeration of transaction balances to lend at interest, has been declared superfluous. Now, instead of looking at banking and saying there are no economies of scale electronic payments services, trading, derivatives, mortgage processing, credit card issuance, syndicated lending and we defined those as banking.

Technology has led to the reinvention of banking. According to Mayer, it change banking from an institution to a business. With electronic data processing and retrieval, the cost of information decreased, opening the traditional banking industry to other businesses that were not banks. Mayer states: “telecommunication tied together a national money market in which all sorts of institutions and even individuals could place their bets.

Cash Substitutes

Mayer points to the credit card as the impetus that led to electronic banking. In 1949, diners’ club, the oldest credit card, was launched. It was originally used as a charge card for restaurants. In the late 60s, MasterCard was founded. Visa followed suit in the early 70s. In view of these developments, Mayer says that what has kept cash alive as the payments system of choice is the ATM or automated teller machines.

Another competitor to cash is the smart card or the stored value card. Mayer claims that it is the portable computer for the third millennium and is a natural substitute for cash. He states that already, there are 50 million rechargeable cards in consumers’ hands, most of them in European countries.

An innovative substitute is digicash or electronic cash on the internet which was commercially used in 1995. Mayer explains how this works. A bank advertises an internet account that would issue digibucks. Anyone with real account at the bank could transfer money from that account to a digicash account in an internet site. Buying from a vendor on the internet, he could offer to pay in electronic cash or e-cash. If the vendor also had an account at the bank, the transaction could be completed without the use of cash or credit. The vendor would get a next-day credit at their bank account.

Future Banking

Based on his analysis of the emerging technologies and the changing needs of the future generations, Mayer shares his vision of banking for the 21st century, particularly in the United States. He says that in the future, there would be only about 20 large banks nationwide and they would have electronic links to their corporate customers, to the markets and other financial service institutions, to each other, to smaller banks and to their individual customers. He says that a small percentage of customers will still use checks while the rest would do their business in plastic. Customer will pay fees for services and invest their money in a variety of securities and loans.

Mayer also predicts that in the future, the banking industry would include the traditional banks, brokerage houses, credit card companies, ATM networks, Microsoft and other network providers.

The new world of electronic banking,” Mayer optimistically believes, “will be cheaper, more convenient, and eventually less intimidating than the old world of paper and bricks.

For readers who are looking for a prognosis of the role of banking in economic development (especially those who watch with trepidation the recent economic developments), they would be sorely disappointed.

Mayer’s next generation of bankers was defined strictly in the context of the first world where technology is the moving force in society.

In banking, the Philippines have just come aboard technologically. Perhaps what is more important to us now is: will the banks do its share in keeping the economy afloat? The banker who can and will is the kind of the new generation of bankers.

The Bankers: The Next Generation By Martin Mayer
Truman Talley Books/Dutton, New York, USA 1997, 514 pages

Author: Regina Galang Reyes. First published in the Philippine Daily Inquirer September 22, 1997

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Founding Editor, People at Work, Business, Phiippine Daily Inquirer

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