Earlier this year, I attended in Frankfurt a conference on "The Bank of the Future" organized by the International Bankers Forum of Germany in association with Deutsche Bank, the Frankfurter Allgemeine newspaper, and EDS, an information technology and service company. The conference was articulated around two panels on the implications of the digital economy and on the role of banks in the digital economy. It also featured a special lecture on the future of money. The Digital Economy. The two panels on the implications of the digital economy and on the role of banks in the digital economy made little progress. Alarmed at the threat of Internet-based competitors such as E-Loan, which invites favorable, on-line comparison with the more expensive services provided by another 70 banks in the United States, the panelists reasoned that the Internet might impact on traditional providers of financial products as it did on share trading. They stressed the need for banks to focus on core competencies, to realign horizontally, and to embark on permanent change management. However, they were not able to discern the exact nature of the competition facing banks, and could therefore only recommend wide-ranging preparations lacking a logical framework. The Future of Money. In contrast, the lecture on the future of money presented by Professor Bernard Lietaer 1/ was enlightening. Professor Lietaer argued that the nature of money has not changed fundamentally for the last 300 years, but that it is about to. In support of his argument, he delineated three mutually reinforcing trends causing mutations in the international monetary system, in geopolitics, and in information technology. First, he explained that the mutation in the international monetary system is due to the fact that "Big Money" is no longer on the side of governments: it has different, multiple masters and is quite volatile. This volatility is encouraged by the lack of an international standard of value and the incessant fluctuations of the US dollar. Next, he pointed out that the mutation in geopolitics owes to the end of the Cold War and to globalization. Until the late 1980s, the main actors on the world stage were nation states, acting through treaties and armies. They are now corporations or nongovernment organizations operating through deals and lobbies. Last, he noted that the mutation in information technology is by reason of the communications revolution leading us from the industrial age into the information age. In the industrial age, banks were protected by monopoly of access and were the main profit centers. In the information age, however, banks gradually lost their monopoly of access through the successive rise of mainframe computers, personal computers, and the Internet. Since money is an agreement and little else, Professor Lietaer observed that it can assume new forms when the conditions demand it. New forms of money now include credit cards, smart cards, e-cash, electronic purses, and Internet payment systems. But, other forms of money may also spread, such as the "Frequent Flier Miles" programs introduced by airline companies, and which are reminiscent of the credit card innovations pioneered by oil companies and Diner's Club. In addition to airplane tickets, these programs also allow clients to buy other services, e.g., limousine transport and hotel accommodation. And, reportedly, British Airways has just entered into an agreement with Sainsbury's enabling its passenger miles to be redeemed in that company's retail stores across the United Kingdom. Professor Lietaer made the case that the ongoing consolidation in Frequent Flier Miles programs will encourage the emergence of similar forms of money over the next two to three years, and that a "Global Barter Currency" will appear eventually. If banks ignore this trend, corporations will set up their own countertrade departments and form alliances. Rather, banks should join the corporations that take such initiatives, since they might wish to brand their names through association. But, whatever happens, money will in future be backed increasingly by baskets of services, as it used to be backed by gold or silver. And, unlike present day currencies, the new Global Barter Currency will be stable and automatically convertible. It will act as a real means of exchange, rather than as a store of value. It could even provide a safety net against future currency uncertainties, or function in countercycle with business cycles. In Germany, the number of meetings held to discuss topics such as those mentioned above is high. So far, they have failed to produce workable responses because the exact nature of the competition facing banks is still not readily visible. Nevertheless, two conclusions can be drawn from the discussions on the digital economy and the future of money. Conclusions on the Digital Economy. It is not difficult to see that banks that have until now profited just because they are in a particular location will find, increasingly, that just being there is no longer sufficient.2/ Since the Internet makes geography less and less important, the global economy will soon witness more and more electronic, on-line banks that have no branches. These low-overhead, electronic banks will be extremely competitive, and transactions will be made via computer appliances. There will also be less need for cash because most purchases will be settled through new forms of money, such as those mentioned earlier. Thus, banks will be especially vulnerable to price wars, with clients selecting banks only on the basis of costs and interest rates. Banks must therefore find ways to maintain their identity and to justify their roles as middlemen by adding value. To add value, banks must create, market, and deliver banking packages to niche segments of the population. For this, they must use software tools that make it easier for their clients to learn about and use their services. They must intensify their presence in the Internet by becoming closer and more responsive to their clients. Clients would then be able to tell banks what they like and dislike and banks would respond by offering banking services tailored to the needs of individual clients. This can be done with software that will, for instance, gather data from several accounts, analyze spending patterns, calculate tax liabilities, view investments in what-if scenarios specified against goals, build reports, and generate this data for spreadsheets and chart creation. Ze Project, a new electronic bank, is pioneering one such approach to customized home banking.3/ Conclusions on the Future of Money. The Global Barter Currency may take longer to eventuate than Professor Lietaer expects. But, it has intuitive appeal, and would cause a further segmentation in the services provided by banks. This would require a different response from that just suggested. So, it may well be that only the large, traditional banks would be in a position to respond to the formation of countertrade departments by large corporations, leaving smaller banks to reinvent themselves as electronic, on-line banks providing customized home banking. (August 2000) Copyright ©2002 Olivier Serrat 1/ Professor Lietaer is currently Research Fellow at the Center for Sustainable Resource Development of the College of Natural Resources, University of California, Berkeley. His latest book is The Future of Money: Beyond Greed and Scarcity. 2/ Now, most people bank with an institution that has a branch office near their home or near their workplace. 3/ Ze Project is the first portal devoted to home-based financial services. Ze Project is a new approach to customer-bank relations, a web site that invites clients (both existing and prospective) to discuss available financial services with one another, a community that lets each visitor build his or her own ideal bank by defining and expressing specific investment needs, and a forum where users can participate in savings-oriented games and competitions. It targets European consumers and Internet users. It hopes to meet their expectations with concrete responses underpinned by clarity, accessibility, round-the-clock service, efficiency, user-friendly services, and tailor-made services.

the bank of the future