The smartbank in your pocket

Brett King in How Steve Jobs Changed Banking Forever:

In the end when the dust settles, there will still be banks at the backend owning the wires, payments networks and carrying the risk, but they won’t own the customer. The customer will hardly notice banking embedded in their daily life as they go shopping with their phone, as they buy a new car or home, or as they travel overseas or send their kids off to college. It will just be a part of our everyday life…

The italics are mine.

I’ve long thought banking would be an ideal fourth party, for the simple reason that banks are services that tend to work on our side of the demand/supply divide. Each of us also refers to our banks in the first person singular possessive voice: my bank.

Banks are places where we store personal value. They also care about the form of personal data we call money.

I could go on, but I’d rather hear what ya’ll think.

12 Comments

  1. I’m waiting for the day when Paypal can be my ‘sole’ banking service. But in order to do that It has to overcome some deep irritations such as only allowing bank accounts and credit cards to be located in the country where you have a residential address. This does not work for me. I have cards from one country and live in another… too confusing for Paypal at present.

  2. bruce wayne says:

    We do say “My” when referring to “our” banking services…..For me the issue is that the Banks hold our funds, facilitate our transactions, and handle our identities…but they are not “Owned” by “US”…..They are Companies that leverage individual and community asserts to generate revenue and profits…. Interesting enough many internet apps/companies do the same thing….i.e. Twitter, FB, Google and the rest…..

  3. bruce wayne says:

    We do say “My” when referring to “our” banking services…..For me the issue is that the Banks hold our funds, facilitate our transactions, and handle our identities…but they are not “Owned” by “US”…..They are Companies that leverage individual and community asserts to generate revenue and profits…. Interesting enough many internet apps/companies do the same thing….i.e. Twitter, FB, Google

  4. PJ says:

    Why do we need banks? Wouldn’t it be possible to run our own agents – account managers – and set some basic policies about how our money and information is to be shared? Then a bank just becomes a repository for data, like a database. Or if something like Bitcoin takes off, they just… go away. Well, they’d most likely turn into investment firms and loan brokers, but their value as a place to store value would be obsolete.

  5. bruce wayne says:

    How about a “Community Bank”

    The “Community Bank” passively returns monetary value to “Community” projects. Each time that a member of the “Community” takes an action that leads to revenue being generated the services adds a portion of the revenue to the “Community Bank”. Members also will have the option of actively contributing part of the revenue that they earn to the “Community Bank” as well as to other “Community” organizations

    http://blog.maia68.com/?p=40

  6. Bill Anderson says:

    To Doc: I’m absolutely in awe of Brett King’s ability to get paid to write such absolute garbage. That man has no clue whatsoever as to how the banking system works. To suggest that the iPhone will be the downfall of the banking system as we know it is so ludicrous that it defies my considerable ability to denigrate him.

    I’ll send you (to your Harvard email address) a copy of my opinion paper titled “A Trusted Security Ecosystem Already Exists for the Internet”.

    To Rebecca: PayPal is not now nor will it ever be a “banking service provider”. It is an intermediary between you and your bank. It acts like and is licensed in many states as a check cashing service.

    PayPal is not confused at all when it requires you to have accounts and credit cards in your country of residence; it’s the law. There are some very strict laws that govern the movement of money between countries and PayPal must follow these laws or go to jail.

    To Bruce Wayne (Batman?): Look up the definition of first person singular possessive voice before you take Doc so literally. And exactly which “community” do you live in?

    To PJ: Checked on Bitcom lately?

    http://www.theatlantic.com/technology/archive/2011/08/the-bitcoin-economy-is-collapsing-with-no-sign-of-recovery/243253/

  7. Doc Searls says:

    Thanks, Bill. FWIW, I’m not saying here that Bill King is right about everything, but rather about one thing he said in that post.

    I got your piece, thanks. I’ll read it soon and get back to you.

  8. Jose Murilo says:

    I’ve been following your thoughts on VRM for some time now, and I’ve always had this notion that banks are somehow in a good condition to take the role of what you call the 4th party. Specially when you talk about ‘public’ banks, that stand as infrastructure for public policies and projects in developing countries. Maybe it is even easier to be aware of this possibility being outside the US banking model. I work for the biggest bank in Brazil (Banco do Brasil), the one who championed free software implementation. I am sure that your VRM takes would reverberate around here.

  9. Bill Anderson says:

    I’m sorry to be acting liking like such a prig, but I think if you’re serious about getting banks involved in your project, you should learn the language. The word “party” as it is used in banking is taken from the leagal dictionary and is defined as “3) a common reference by lawyers to people or entities involved in lawsuits, transactions, contracts [checks and all other debit transactions are considered contracts] or accidents, as in “both parties knew what was expected,” “he is a party to the contract,” “he was not a party to the criminal conspiracy….”"

    The role that a bank plays is characterised as “fiduciary” and is also a legal term defined as “1) n. from the Latin fiducia, meaning “trust,” a person (or a business like a bank or stock brokerage) who has the power and obligation to act for another (often called the beneficiary) under circumstances which require total trust, good faith and honesty.”
    Both quotes come from Law.com.

    Speaking as one who spent my career in the back office of bank oprations, I can assure you that we take our responsibility very seriously. I can’t, however, say that about the weasles in the front office…

  10. Bill Anderson says:

    Doc, I thoght it might be enlighten to post an excerpt from the paper I send to you that supports the notion that “In the end when the dust settles, there will still be banks at the backend owning the wires, payments networks and carrying the risk [and they WILL CONTINUE to] own the customer”.

    In 2009 (the most current data available) the number of non-cash payments was 108.9 billion with a value of $72.3 trillion. Payments made by debit, credit, or EBT cards were over half (60%) of all non-cash payments in 2009 but only 4.9% of the value. In contrast, ACH (an ACH item is the electronic equivalent of a check) payments were only 17.5% of non-cash payments but 51.4% of value, and while checks were just 24.4% of all non-cash payments, they amounted to 44% of the value of all non-cash payments. Checks and ACH items account for 95.1% of all non-cash payments by dollar amount.

    The Check Clearing for the 21st Century Act (Check 21) allows banks to convert checks to ACH items at the first point of presentment without seeking permission from the account holder do to so. As a result, paper check volume is decreasing and electronic check (ACH) volume is increasing.

    Non-cash payments made on the internet are usually credit card payments. In 2009 retail sales on the internet amounted to $160 billion. That might seem like a lot, but compared to $72 trillion, it is an insignificant .2%.

    That is why banks have no concerns about fraud on the internet nor do they have any interest in whether you pay for a latte with a smartphone.

    Banks make money by lending out your money and the longer they can hold on to it the more they make. There is very little motivation for them to make it easier or cheaper for you to withdraw your money. And since our government has seen fit to move the cost of transaction processing from the merchant communitee to the consuming community, you can expect to see more fees and restrictions for withdrawing your money. Be prepared for a “tap fee” when you use your smartphone.

    As to ownership issues, I contend that banks “own” the customer and always will because banks take the customers money in the form of a payroll or SSA direct deposit, ordinary check or cash and dole it out as the customer directs as they go about their daily business.

  11. googleclone says:

    While the advertising mills keep talking to themselves, VRM development continues. As it starts to go mainstream, we’ll need a new organization, primarily for customers, rather than just for marketers. We’re working on that, and expect to have it going in the next six months. So stay tuned. Meanwhile, join me in thanking the Berkman Center for giving us the runway we needed to get VRM development off the ground

    .

  12. Another reason why we’ll probably need banks for a very long time is credit. If I’m not mistaken, NET interest income typically accounts for more than one half of a multipurpose bank’s revenues. Payment services are usually a smallish part of the same (of course, there are variations). Brett King seems to believe the banking system(s) and the payment system(s) are one and the same, they’re not. Which does not mean there aren’t any issues with customer ownership and customer empowerment: There are, and clearly, some of these issues do create opportunities for new players and new models.

    But (clever) banks seeing the opportunity and rising up to it are also a possibility.

    Where I’m from, France, we (“we” being Fing, a nonprofit think/do tank) are in the process of gathering at least one bank, one or more retailers, a loyalty card firm, possibly other utilities and local communities, in order to design a large-scale project around customer ownership of their data and VRM. The project will be truly open, including to new players who would gladly see themselves as better 3rd and 4th party (apologies to Bill Anderson) providers.

    In fact, Doc, I sent you an invitation to check whether you, or someone close, could take part in a workshop that would colaboratively define this project’s precise outline. I certainly hope you can make it. Would love to see you guys in Paris soon:)

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