Why is the ATM the last great banking innovation? That’s what former
Federal Reserve Chairman, Paul Volcker, wonders.
While Silicon Valley has created a tremendous amount of society
changing ideas and businesses, Wall Street’s attempts at innovation have
mostly backfired. Instead of Google, ethernet, LinkedIn, the iPhone or
eBay, Wall Street can proudly claim credit default swaps, junk bonds,
overdraft protection, and market killing computerized trading systems
(the New Yorker’s James Surowiecki wrote a nice column on this). While not exclusively
destructive, banking innovation since the 1960’s has done little to
improve society in any meaningful and lasting way.
Why is this? It’s rooted in a cultural mindset and technological
orientation. Despite all the hype and vapor, Silicon Valley is driven
by populist optimism, idealism and its greatest innovations are based on
openness and transparency. Wall Street’s mindset, on the other hand,
hinges on pessimism, elitism and its products are closed and opaque.
Many people need to lose for a derivatives trader to win. To this day,
we don’t know the real composition of mortgages in a bond. Where it not
for the still relatively obscure peer-to-peer lending movement, people
can only easily borrow money from banks, not one another.
While we should be jaded about the dotcom “do no evil” addage, it’s
hard to argue with Silicon Valley’s contributions to a more open society
and to a tremendous amount of wealth creation. Google, eBay and the
iPhone are powerful because they are open to you and me expressing our
creativity and entering a global marketplace. Silicon Valley’s open
standards (TCP/IP, HTML, XML, SOAP), and even its proprietary
communication standards (APIs) leverage our collective wisdom.
If Wall Street could embrace the same aspirations and open technical
approaches our credit bureaus might accurately reflect our stability,
ability and willingness to pay. Our trading platforms might be
transparent and open to all. A mortgage might be comprehensible and
combine debt from friends, family and banks. And perhaps our ATMs could
pass the torch after 50 years of being the last great financial
innovation. Look West, Wall Street. Look West.