Its touchless payment system for iPhones; venture capital funds are
pouring money into “fintech” start-ups; and Marc Andreessen, the
technology entrepreneur, talks of “a chance to rebuild the system.
Financial transactions are just numbers; it’s just information.”
Mr Andreessen, a partner of the venture fund Andreessen Horowitz,
added in an interview with Bloomberg Markets magazine last week: “To
me, it’s all about unbundling the banks. There are regulatory arbitrage
opportunities every step of the way. If the regulators are going to
regulate banks, then you’ll have non-bank entities that spring up to do
the things that banks can’t do.”
This raises plenty of questions, not least about the last time
non-bank entities (also known as the shadow banking system) took over
financial intermediation below the radar, stoking the 2008 financial
crisis. But my question is: does Silicon Valley really want to blow up
retail banking and create an entirely new financial system, or would it
prefer to ride on the existing one?
Aside from Bitcoin
and cryptocurrency-related companies, in which Andreessen Horowitz
invests, the evidence points firmly to the latter. Apple Pay sounds
radical but is essentially a way to turn a phone into a contactless
credit or debit card, with the support of US banks. Other start-ups are
nibbling away at banks’ more profitable services, not competing head-on.
There is no doubt that the infrastructure of retail banks is
antiquated, and is built in a way that invites competition from
peer-to-peer networks. Nor is there a doubt that banks make themselves
vulnerable by how they price – offering core deposit services cheaply or
free while squeezing customers on ancillary products such as overdrafts
and currency exchange.
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