As the consumer banking and payments industry deals with the cataclysms wrought by globalization, technology advances, and the accelerating pace of change, it could learn a lesson or two from the telecommunications business.
Telecommunications underpins our business infrastructures. It is where technology has raced forward most rapidly. Yet this technological momentum has not produced the great changes that were widely predicted.
Consider some intriguing similarities with our payment systems.
Until not too long ago, telephone services were a monopoly, or at least an oligopoly, the world over. Many providers were state-owned. Smaller players operated in the giants' shadows, adhering to standards they enforced.
The same can be said for the banking industry. While the number of companies is much larger, the services offered and the method of delivery must still be classified as monopolistic or oligopolistic.
For almost a century the telephone industry provided few plain-vanilla services, with regal disregard for the desires and diversity of its customers. And in spite of some innovations and clever giveaways, payment services remain relatively few. Even when they differ, their availability is often limited by geography and by type of terminal equipment.
Under cover of regulations, communications pricing was bundled, not value-related, and in many cases excessive. And today, there are no markets where consumers applaud the structure, availability, and pricing of payment services.
Years ago, telephone companies saw no need for marketing in its true sense. The industry's status as a public utility rendered the customer captive, arrogantly assumed to be incapable of making intelligent decisions on complex telecommunications matters. Paradoxically, some companies maintained the most advanced laboratories to maintain a technological edge - yet seldom adopted their own significant discoveries.
Banking has seen a worldwide swing away from nationalization and toward privatization. It has begun to master the marketing of its products, few though they may still be, and has at its disposal a plethora of technological advances. Yet the catalyst for real change is still lacking.
Many factors accounted for telephone companies' historical status and way of operating, among them government regulation and internal complacency. But along with these factors, the intrinsic structure of delivery systems was paramount.
Each monopoly owned and operated its own network and strictly regulated how smaller players connected to it. All companies, large or small, public or private, owned every telephone. These jealously guarded jewels of technological stability were mostly "dumb," unable to do anything on their own because they were under the tutelage of Ma Bell and its counterparts around the world.
Many might grumble, but the parallels are evident: MasterCard, Visa, American Express, and Europay frequently raise the specters of security, integrity, reliability, redundancy, and repeatability to justify their grip on the payments business.
Terminals in all areas must adhere to a lowest common denominator because truly universal terminals are economically out of reach. And banks proclaim ownership of all "access devices" - those mostly rectangular pieces of inert plastic whose major distinguishing feature is their artwork.
Things changed rapidly for the telephone industry once deregulation opened the door for competition both on the systems side and in access devices. It did not happen voluntarily and met resistance in the name of maintaining system reliability.
But the system did not collapse. It flourished. Operating costs did not rise. They plummeted. The quality of service did not suffer. It greatly improved in multiple variations to an extent never dreamed possible by the most optimistic forecasters.
Once the frontiers of telecommunications opened up, its historical essence became unrecognizable. Most users selected and bought their own access devices, each richer in features and advances than the other. Carriers shared backbones, satellite channels, etc., while each began to customize its services, and yes, they competed fiercely on price. Service providers eventually became more profitable than ever.
It behooves the consumer payment services industry to take a long look at this almost incredible transformation. A similar metamorphosis is within its grasp.
As an example, a less conventional, commonsense approach to chip cards can, when combined with more advanced system concepts, give consumers a truly full-featured "access device." These, in turn, can enable any and all service providers to deliver uniquely personalized services, approaching the magical "market segment of one."
For this to happen, all providers, large and small, local and "long distance," must be able to deliver their proprietary services over unrestricted infrastructures. No valid technological obstacle exists to thwart this achievement if networks are shared, transparent, and governed by only the bare minimum of standards. Point-of-transaction terminals can deliver all services to all consumers at all times, if we only rethink the role and essence of a network access point.
Most fundamental of all, consumers must be given the freedom to own the new type of card, one of the many powerful multifunction devices created by profit-driven innovators and available through the local electronics store.
The very important issue of security will be seen in a totally different light when each service provider can define and adopt its own standard, guided by its own business equation. Personal identification through biometrics will become acceptable because it is delivered through the privacy of the access device.
Even as we prudently maintain an acceptable level of service to our less progressive consumers by keeping our beloved plastic cards fully operational, real and unbridled competition will jump-start the transition to the new paradigm.
Let's not overlook the fact that, in spite of technological advances, the telecommunications industry stagnated until it had abandoned the old delivery-system mentality and opened its borders to all comers. And what is pertinent to the future of banking, we first must admit there is as yet no sign of a true paradigm shift, although revolutionary technology has been with us for quite a while.
It may be time for us to accept the fact that the catalyst for change lies in abolishing traditional forms of service delivery. Existing technology plus innovation will help redefine our business only if we welcome an environment of truly open systems.
Though momentous, such change cannot come about as the result of a disruptive revolution. It must be a thoughtful and deliberate evolution. But if caterpillars can become butterflies ...
There are sure to be difficulties. One company's well-focused strategy will be another's misdirection. Some will want to lead the parade; others will laugh off the need to change; and loud protestations will be heard from the keepers of tradition.
Yet the telecommunications experience should remind us that, as we embrace new ways, the system will not collapse, operating costs will not rise, and quality of service will not suffer. To the contrary, all will greatly improve in multiple variations. And service providers will be more profitable than ever.
Mr. Francini retired in 1994 as executive vice president of Visa International. He grows premium wine grapes in Calistoga, Calif., and is a strategic planning and technology consultant to the information and payments industries.
