A Most Promising Mess

When mine eyes behold what technology hath wrought upon today’s financial services industry, I cannot help but breathlessly marvel aloud, “What a mess.”

Ah, but a promising mess it is.

Estimote and JingIt want to feed product and pricing information to customers at point-of-sale while simultaneously feeding customer data back to merchants. PayPal Beacon promises to let shoppers leave plastic cards and smart phones tucked safely in a wallet or purse. Google Wallet lets people dispatch funds via email to anyone in the U.S., scan debit and credit cards for online purchases, store loyalty cards, and make retail purchases with participating merchants. VerifyValid and a host of others want to help businesses disburse, collect, and manage funds faster than a speeding bullet over tall buildings with a single bound. Kabbage, OnDeck, and—surprise, surprise—Amazon all want to make business loans. Visa hopes to fight back with V.me.

As for banks, they’re not exactly taking this lying down. Players like Chase, Bank of America, and others have been in the game all along. More than a matter of growth, it is a matter of survival. If non-banks succeed in taking over transaction services, banks risk becoming faceless depositories bookending the transactions. This would rather remove the “relationship” part from an industry that calls itself a “relationship business.” Rest assured that banks do not intend to settle for mere utility status.

Though there appears to be room for multiple players in the paperless-wireless-checkless-cardless game, appearances deceive. This is an arena where multiple players cannot win in any big way. Businesses are loath to commit to a system not universally used by customers; and customers are loath to commit to a system not universally accepted by businesses.

Some people describe this as a chicken-and-egg problem. That doesn’t quite work for me. (Besides, the egg was first.) Not to worry. Another, more apt analogy comes to mind: 

About six decades ago, just about every major retail chain issued its own credit card. No merchant accepted any other merchant’s card. Consumer wallets were growing fat with myriad pieces of plastic. Various companies began experimenting with ideas for a single card accepted by all. Trouble was—this may sound familiar—businesses were loath to commit to a card not universally used by customers; and customers were loath to commit to a card not universally accepted by businesses.

Contenders began emerging: Diners Club, American Express, Master Charge (later to become MasterCard), and BankAmericard. The initial result was anything but the desired effect of consolidation and simplification. Rather than reducing credit cards, issuers had only succeeded in adding more.

But markets have a way of sorting things out. In 1958, Bank of America signed up 20,000 merchants in California and issued a staggering 2 million consumer cards. In time, it was BankAmericard that took off, later morphing into Visa, today’s near-universal card.

(Unwittingly, the universal credit card industry spawned another new industry: credit card fraud. That may also sound familiar. Today’s high tech industries have spawned high tech criminals. It’s an arms race.)

If, like me, you weren’t around see it happen in the 1950s, don’t despair. You’re about to see it happen all over again. I for one can’t wait to see how it all turns out.

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