By the time Generation Y reaches middle age, there may be little reason for people to interact in person to borrow money, take out insurance, or make any sort of investment. The accessibility and prevalence of on-line financial services can only increase.
The populism promoted by the Internet assures that bankers will lose much of their power and control over the individual or small-business customer. The customer's ability to move quickly through the marketplace, picking and choosing vendors and combining them into a unique and personalized "conglomerate," requires a complete shift in thinking on the part of service providers.
Financial institutions are burdened by systems, methods, and "genetic memory" that make it difficult to recognize, much less serve, this new consumer. These institutions, much like the state enterprises of discredited regimes, cannot easily be dismantled or revamped. They will shrink naturally, like the full-service gasoline stations of 30 years ago that gave way to the quick-stop, credit-card-swiping, self-service depots of today.
Firms that are born out of a technology solution will be able to expand into new substantive areas more easily than non-technology-oriented companies can move into technology. In other words, it is easier for an Electronic Data Systems to become a bank or a broker than for Citigroup to become a technology innovator. The legislated financial modernization makes this development more plausible, though it was already possible without new legislation.
E-Trade Group may be the closest example we have of this type of innovation. Because it began as an on-line business, it was more a technology company than a broker. It attracted customers who wanted to do business without too much human intervention. As it expands into banking and other financial services, its success may well depend more upon the simplicity of its interface than on the competitiveness of its rates and terms.
Overcoming customers' primary resistance to on-line services is a technology challenge. Concerns about privacy, security, and convenience will be addressed by software engineers, not account executives. These engineers will eventually devise ways for consumers to get cash (or near-cash) and make deposits without leaving their desktop computers. Why shouldn't those who develop and produce the tools that enable e-commerce control the customer relationship?
Another major reason technology firms will dominate financial services is their ability to raise money in the capital markets. The thirst for a share of the Internet revolution will remain unquenched for some time. This means easier access to cash for expansion and for campaigns to build a dominant brand. Technology companies' tools and opportunities make them capable of creating a new order in the world of money.
The conventional thinking is that technology companies can be servants of or partners with financial institutions to participate in this revolution. But technology firms could turn this thinking upside-down. Ms. Hoover is the founder of the Hoover Partners law firm in Washington. She has worked on a number of atypical bank charters and helped a technology company enter the financial services business.