It’s jargon, but I can’t think of a better word than “paradigm” and it happens to fit, so let’s stick with it.

While friends have questioned my use of a branch-less bank, I have been beyond satisfied banking by the Internet, mail, and the phone. I don’t understand the point of using a branch. I can open accounts without seeing someone in person. I have direct deposit for my paycheck and submit checks my mail to be deposited at zero marginal financial cost to myself. I can pay bills, check account balances, and withdraw cash. The one thing I can’t do is deposit cash, but since I’m not currently employed in a cash intensive job (bartending, stripping, drug dealing), this isn’t a problem for me. The fees are lower and the available hours are longer.

And yet! And yet most people I know still balk at the idea of branch-less banking. They have it stuck in their heads that a bank is a building with tellers and a safe. But a bank is just an institution for managing finances. Once you look at it that way, the brick and mortar branch becomes vestigial. There might always be a place for brick and mortar (branch and mortar?) banking, but as the core driver of banking it’s on a dead end road.

The interesting thought experiment involves looking at other industries where similar changes have taken place and then drawing out the commonalities to develop a method for discovering the potential for change in other industries.

The biggest driver of innovation in the services won’t be instigated by technology changes so much as the identification of malleable assumptions. In lending the assumption was that a customer went to a bank for a loan and the bank told the customer what rate it would give him for the requested loan. Then someone questioned that assumption and decided that maybe you could aggregate bank offerings and create a market for lenders and borrowers alike. At this point, why not further the idea by questioning the assumption that consumers must borrow and lend through the bank middleman. This idea, brought to life by Prosper, will take a while to really get going I think, because people are invested in the idea that you borrow from a bank and that you lend (e.g. savings/CD’s) through a bank. Of course technology allows for this innovation, but technology is only a necessary factor, not a sufficient factor for innovation.

This leads, by and by the way, to an old theory of mine that even non-retail businesses are all in the business of making and enabling markets, little sub-markets. More on that later, perhaps.