Old Truisms Won't Get You Far in the '90s

In the past 30 years, Western society has gone through extraordinarily turbulent times. The way we do things has been altered dramatically. What was right in the 1960s and 1970s is highly inappropriate for the 1990s, and conversely, what seemed impossible in the '60s is so ordinary today that we forget it wasn't always so.

The spread of computers and telecommunications and the rise of global markets have changed the way we do business and the way we communicate. The deregulation of major American institutions like banking, airlines, and telecommunications would have been unfathomable 25 years ago.

In the early '60s, environmentalists were considered radicals spouting wild ideas. Today an entire industry has sprung up to deal with pollution, and environmental issues are a major concern for business.

Sometimes it seems the rules are changing faster than we can adapt to them, and these changes create a sence of impermanence.

Few would argue that there is great uncertainty today and much turbulence in the banking industry. Banking has undergone significant changes in the past 30 years. Some of these changes include:

* The emergence of nonbank competition.

* Mergers and acquisitions.

* The role of credit cards.

* The focus on earnings and cost reduction.

* The role of the automated teller machine as a delivery system.

* The automated clearing house.

* The popularity of outsourcing.

I believe that the 1990s will bring unprecedented change in the banking industry - a complete paradigm shift. And the survivors will be those who can anticipate the future, look beyond the boundaries of how it has always been, and look at the current situation from a new perspective.

Paradigm Defined

A paradigm is nothing more than a set of rules for success in a given domain. In any domain, there are certain rules that have come to be accepted about how to be successful - what works and what doesn't.

For example, bankers have come to accept bank cards as a profitable way to make consumer loans. Similarly, but on the negative side, they have come to believe that banks cannot open their cash vaults to customers for self-service check cashing. That just doesn't work.

Our banking paradigm is filled with such rules and regulations. In fact, we have paradigms about everything. Whether it's banking or space travel, people or the proper way to cut the grass, we are significantly controlled by our paradigms. And our paradigms aren't always right. Remember when:

* The paradigm was that the Earth was flat and the Sun revolved around it?

* The paradigm of Japanese products meant junk?

* The paradigm of bank cards meant they'd only be issued be banks?

* The paradigm of ATMs meant "not shared with the competition"?

In all these cases, at the time it was appropriate to believe them. There was overwhelming evidence to support such conclusions.

So what happened? Things changed, paradigms shifted, and the rules for success were altered. But at the time they were changing, it was very difficult to see. We always thought:

* Gasoline would forever be cheap.

* A college education guaranteed a good job.

* Banks would always be profitable.

* The Bank of New England could never fail.

Paradigms are insidious because when you're in one, it is hard to see anything else. It's like a fish in water. He doesn't know he's in water until you take him out of it.

Major Shift on the Way

Often our paradigms have such overwhelming historical evidence that it is hard to conceive of any other interpretation. But paradigms need to be examined regularly so we can be open to new ideas and new ways of doing things.

I believe the banking industry is on the verge of a major paradigm shift. It has never been more necessary to anticipate the future. Some of the current turbulence is caused by:

* Deregulation.

* The S&L crisis.

* Outside (nonbank) competition.

* Interstate branching.

* Foreign banks in the United States.

* Consolidations and cost cutting.

* Earnings pressures.

* Rampant technological advancement.

* Mergers and acquisitions.

* Questionable ethics.

All of these signs point to an unprecedented shift in the banking paradigm. It is no longer appropriate to think:

* Citibank could never fail.

* Bicoastal branch operations are impossible.

* Cash dispensing could never be done in the home.

* Smart cards will never work in this country.

* Credit cards will always be profitable.

* Loans cannot be approved or declined on-line.

* Retina scans will never replace personal identification numbers.

* Fraud is just a cost of doing business.

* We can never eliminate float.

* We have to settle every day.

* Branches can't be shared the way banks share ATMs.

Whether these ideas are right or wrong is not the issue. The issue is that they should be considered.

The survivors in the financial services industry in this decade will be those who anticipate the future best. In fact, the leaders of the 21st century will be the people who create the future.

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