In the 1970s banking was sheltered, at least in the U.S.
Under Depression-era laws, commercial banks could not enter
into investment banking, and vice versa. But, in 1977, Merrill
Lynch & Co. introduced the Cash Management Account, a
packaging of transaction services with investment products that
was novel enough to be patented. For convenient access to
funds, the accounts came with payment cards carrying the Visa
brand, then wholly owned by an association of banks. One of
their number, an Ohio-based predecessor of JPMorgan Chase &
Co., saw fit to assist Merrill as its banking and card-issuing
Suddenly, those old legal demarcations were punctured by
disruptive innovation. (Pardon the anachronism: That term
didnt enter the corporate strategy lexicon until the 1997
publication of The Innovators Dilemma by Harvard
Business School professor Clayton Christensen.) There would be
more and quite a bit of it before the likes of
Google Wallet and peer-to-peer lending put present-day
financial industry executives on edge.
Deregulation in the 1980s provided an opening for
cross-industry forays. Ford, for one, owned a savings
institution, First Nationwide Bank, but exited in 1994. General
Motors financial services strategy lives on in a
spin-off, the online bank and auto lender Ally Financial.
Sears Roebuck acquired Dean Witter Reynolds in 1981 and put
financial offices in its stores. Sears ultimately merged with
Kmart, and Morgan Stanley with Dean Witter, whose Discover card
endures as one of the leading consumer credit brands.
Fears of disruption turned technological in the 1990s.
Bankers worried that Microsoft, with its ubiquitous PC software
packages, could interfere with or usurp bank-customer
relationships. Microsofts 1994 bid to acquire budgeting
software company Intuit exacerbated those concerns until
the Department of Justice blocked the deal on antitrust
All of that happened before the Internet went mass-market,
and none of it killed off the banks.
The late 1990s brought a wave of disruption, to be sure. The
popular online payment system PayPal, now owned by eBay,
originated not with banks but with a group of Silicon Valley
entrepreneurs that included Elon Musk, who went on to be
co-founder and CEO of SpaceX and Tesla Motors.
PayPal was clearly an opportunity that established bankers
let get away, but they are still in business, whereas legions
of start-ups from a decade and a half ago are long gone. Is
that pattern now repeating itself?
Technology-driven innovation is at a fever pitch,
particularly in the sector that entrepreneurs and venture
capitalists have dubbed
fintech. According to consulting firm Accenture, global
fintech venture investments tripled between 2008 and 2013, to
Cristóbal Conde, a former SunGard Data Systems CEO
who advises young companies in the FinTech Innovation Lab
which Accenture launched with the Partnership Fund for
New York City in 2010 and has since expanded to London and Hong
Kong says entrepreneurial talent and creativity are
abundant both inside and outside of finance. And affordable
technology makes it easier to start a company than ever
before. Once PayPal was seen as an anomaly, he
notes. Now a whole generation of entrepreneurs is
focusing on dealing with financial firms
JPMorgan chief executive
Jamie Dimon, in recent comments at his shareholders meeting
and elsewhere, put Apple and Google in that category. He is
most alarmed about encroachments into payment services.
Googles mobile, virtual wallet has gained limited
traction in two and a half years. On the other hand, Matt
Harris, who oversees fintech investments at Bain Capital
Ventures in New York, said in April at a Bloomberg-sponsored
conference that he likes Apples position in
payments, what with its App Store and iTunes and ability
to authenticate its many loyal customers. Amazon and
Alibaba which already offers e-payments and other
financial services alongside its core e-commerce business
have similar potential.
Still, incumbents have advantages. They have the bulk of
customer accounts and databases as well as the wherewithal to
invest in mobile and online channel innovation as branch
offices are deemed less essential, says William
Weidman, senior vice president of Washington-based data
analytics firm Applied Predictive Technologies. He notes that
in February, Spains BBVA agreed to pay $117 million for
Simple, a Portland, Oregonbased digital banking service
that had signed 100,000 U.S. customers in a year and a
Banking might just survive this latest onslaught and
be changed by it.