A noted futurist says banks must reinvent themselves around doing business with individuals instead of groups. Otherwise they risk losing relevance, and maybe their survivability. Future Shock, Chaos, and the 'Demassification' of Banking With the 1970 publication of "Future Shock," Alvin Toffler came to epitomize the modern futurist - a watcher of, and commentator on, society and its vectors of change. He was one of the first to focus public attention on the information explosion and the broad implications of individuals' declining ability to keep up with it all. In 1980 followed "The Third Wave," which placed the "information revolution" in the inexorable progression that began with the simpler cycles of agrarianism and industrialization. Aside from his more recent writings and lecturing with his collaborator- wife Heidi, Mr. Toffler gained new prominence in the 1990s as a friend and adviser to the Speaker of the House, Newt Gingrich. In this recent interview, Jennifer Kingson Bloom of American Banker probed Mr. Toffler's notion of "demassification" and how institutions like banks might emerge from the apparent chaos. How do you view the outlook for banks? I'm no expert on the industry as such, but it seems to me not yet prepared for the big waves of change that lie ahead - in money, the nature of money, the multiplication of payment systems, and the reality of disintermediation for routine banking services. What does that leave for banks to do? Obviously, this process has been under way for a long time, and banks have begun to generate income from all kinds of new charges and services. I think what we're going to see is a growth of private banking for those customers who don't want to be disintermediated. When you talk about the multiplication of monies and payment systems, are you referring to things like smart cards and digital cash? All of the above - all kinds of demassified payment systems. First let me give you our gig on demassification. Industrialism creates a mass society. It's based on mass distribution, mass consumption, mass communication - mass everything. Banks are part of that system. As the industrial economy and the smokestack way of life decline under the impact of the third wave of change, we become an increasingly demassified society. Instead of mass producing, we increasingly customize products and services. Information technology reduces the cost of providing diversity; it therefore has a demassifying impact. You see this in finance in more different kinds of mortgages, more different kinds of insurance policies, and more different kinds of bank accounts. It goes first to market segmentation, then the segments become smaller and we begin to call them niches. The visionary marketing people talk about "particle marketing," targeting an individual or a family unit. Banks, like all other players in the economy, are going to have to respond to more and more individualized requirements. Some of them are doing that by outsourcing all the odd products that may be at present too expensive for the banks to handle. At the very top levels, the very richest private customers get all the individualized handling in the world. That part of the market has been segmented for years. Now the rest of the customer base is being looked at in terms of frequency of interaction and amounts of money, and all other kinds of lines. You know, the marketing folks will do psychographic studies and everything else for you. What do you think of the Internet, which some banks see as a way to both personalize and give people an alternative to visiting branches? I think we are going to solve the security problems fairly adequately. Banks are not so secure now. I haven't verified this independently, but I understand from security people that many banks at the end of the day do not really know that the money they have sent out internationally has gotten to the right destinations. If the accounts match, it is assumed that all the money got to the right places. But going back to the network, the Internet, I think there is going to be a multiplicity of solutions, not just one. Do you play on the Internet? No. We probably will very soon, but we hide. We do not give out an E-mail address. We'll probably change that policy before long. Let's go back to smart cards. Do you think they're going to take off soon? Do you envision a paperless-cash society in the near future? Nothing is 100% certain, but I think paper currency and coinage will be reduced to trivial uses. For all practical purposes, it is that way right now. In a cashless world, how do you pay the babysitter? Electronically. Then Uncle Sam collects his bit and she can become Attorney General. There may very well be cash transactions and even cash payments for work, but clearly the electronic part of it is going to increase and the cash part of it is going to go down. How far it ultimately goes will vary by country and community. It will be a long time before some people are comfortable with it. We know of a case in which one of the major banks in New York - this is 15 years ago - demonstrated an electronic banking system in a few people's homes prior to the official launch. One husband and wife watched the demonstration very carefully and said, "Yeah, but how secure is it?" They were told it was perfectly secure. "Well," they asked, "who's responsible if there is in fact criminal intervention?" "The bank is not," they were told. "Sorry," they said, "we're not ready to use that system." The bank's team pressed on, saying, "But it is secure, you don't have to worry about that, and let us show you how it works." They put a diskette in the machine and showed how the account could be changed electronically, and after much further discussion, they left. A bit later the wife found the diskette. The team had left it behind. In other words, the vault is perfectly secure until you leave the door open. Exactly. Encryption - which I think is going to be exceedingly important -will have a thousand faces. It's not going to be just one system. And I think it will be sufficient for most transactions. Your name is often mentioned these days in connection with Newt Gingrich. What is it about your ideas that he finds attractive? While we are personal friends with Newt and Marianne Gingrich and have been for a quarter of a century, there are times when we have screaming fights over issues on which we disagree. Your readers should also know we meet quite regularly with Democrats, people in the administration, and feel quite unconstrained in doing so, and Newt knows that. We are not Republicans. We are not Democrats. We actually think both parties are obsolete. Newt is one of the very few people - in fact, the only one we've ever met in Washington - who unselfconsciously thinks very long range. If you say, "Why don't we do XYZ?" He will say, after thinking about it a bit,"What will that look like 30 or 40 years from now?" For most politicians, the time horizon at best is the next election. What are your points of disagreement? The obvious ones that we have been very public about are questions like abortion and prayer in the schools. But the real politics of America today is not between the Democrats and the Republicans but between a vast, disaffected public and a justifiably frightened political class. The two-party system is cracking. Congress and the White House are doing so many things so fast, making decisions about things they know less and less about, and are under such intense pressure for instant payoffs and responses that, in fact, the system is suffering from future shock. What can be done about it? Not a lot, until we take seriously the question of changing not just the bureaucracy, but the entire political structure. That's a biggie. What is the relationship of direct to indirect democracy? Can the Internet change all of that? And here I would like to add a qualification. We are frequently regarded as advocates of direct democracy and electronic democracy. But if you go back and read what we actually wrote in "The Third Wave," you'll find what we call "semi-direct democracy." We do not want to give up the virtues of a representative system (even though it's not very representative) and reduce everything to an electronic pushbutton decision process. But there are ways that we can dramatically improve the system by fusing direct and indirect democracy. We were not great fans of the Contract with America - or of parts of it. But we think the overall direction of that was toward a de-evolution of decision-making from Washington downward, and that is absolutely necessary. We use the concept of a "decision load," which is determined by the speed of decision making, the required speed of the decision process, the complexity and diversity of decisions. If you could measure these, you would find that Washington is simply overloaded, and that's why all the fuses are blowing. The posturing, the polarizing, is all a game. If you talk to them privately, senators from both parties complain about the roles they're compelled to play that have nothing to do with the way democracy was supposed to function. We are in a situation where nobody feels represented. Wealthy people, who theoretically control society, have complained to me that the system is unresponsive. These are the same complaints you hear from the man and woman on the street. When friends of presidents complain about the two-party system, clearly there's something wrong. Are you working on a new book? We're always working on a new book. At any given time we probably have up to 20 in outline form, and we are in the process of choosing from those outlines and recombining them. The next will probably have a lot to say about economics, finance.
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