Back in 1936, in Esquire magazine of all places, F. Scott Fitzgerald wrote something profound. “The test of a first-rate intelligence is the ability to hold two opposed ideas in the mind at the same time, and still retain the ability to function.”
Recently I heard someone say banks are now essentially technology companies. So much lending now happens in the capital markets and “shadow banks” that the legacy banks are mostly service providers. They process payments, hold assets in custody, and provide the financial system’s necessary plumbing. Old-style “banking” is on the way out.
That may be a stretch, but it is true that the financial services business is changing fast, due largely to technology. Stock trading commissions are one obvious example. Remember when it used to cost $50 to buy 100 shares of a stock? It wasn’t that long ago. Now the fee is pennies or even zero. That’s partly because brokers have found new ways to make revenue from order flow, and partly because their costs are mostly fixed. Once you have the systems in place, the incremental cost of processing one more trade is negligible. Competition does the rest and customers win.
More competition is coming. You know what Amazon has done to the retailing industry? Banks may be next. Amazon has ways to deliver many of the services we presently get from banks. So where exactly is that line between technology and banking? It’s hard to say and getting harder.
Blockchain-based cryptocurrencies are slowly finding their place in the financial system, too. I’ve been a Bitcoin skeptic—and it may yet give way to some other currency—but this isn’t fool’s gold. The technology has real advantages that will change the industry.
When I see people like John Burbank and Mark Yusko essentially go “all-in” on blockchain investments, staking their careers and reputations and hundreds of millions of dollars on something so ephemeral to most of us, I sit up and take notice. Something is happening here.
Finally—and you wouldn’t know this from all the tariff talk—capital is flowing around the world like never before. Investors who once thought they should stick “close to home” have branched out internationally. They do this in part because technology makes it possible to monitor assets you own, even on the other side of the world. This is good because it means capital will flow more easily to the entrepreneurs with the best ideas, wherever they may be geographically. Ultimately, that’s good for everyone.
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