The modern financial services industry is a casino attached to a utility. The utility is the payment system, which enables individuals and companies to manage their daily affairs… Modest levels of speculative activity may improve the operation of the utility[From Essays: ‘Making banks boring again’ by John Kay | Prospect Magazine January 2009 issue 154]
His imagery is not only, as always, accurate and thought-provoking but also valuable because it gives us a context for thinking about the way to take the payment system forward.
John Kay’s argument is, and I’m obviously paraphrasing horribly, that the drive toward tighter regulation (inevitable as a response to the economic crisis) can never produce the desired result. The idea that you can make the stock market function as smoothly, efficiently and unexcitingly as, say, the supermarket is just plain wrong.
The primary objective of the regulation of financial services in the future should be that the casino should never again jeopardise the utility. Many people think that the best method of achieving this is close supervision of the casino. This is misconceived. Instability is endemic to financial markets.[From Essays: ‘Making banks boring again’ by John Kay | Prospect Magazine January 2009 issue 154]
For one thing, there’s no reason to suspect that politicians and their appointees will be any better at assessing risk and making the right decisions than the bankers who got us into the mess in the first place and the knee-jerk calls for more regulation will not only have no effect but will in addition make many things worse — in particular, the payments marketplace, where we need more competition and less regulation to stimulate innovation — so that we just cycle back round to collapse in another generation. In fact,
The better response is to separate the utility from the casino. The purpose would be to restore “narrow banking”. Narrow banking requires little flair and imagination, rather the conscientius completion of millions of transactions a day with minimal error. While technology and innovation have changed the processes by which narrow banking is provided, the customer needs that are served have changed very little.[From Essays: ‘Making banks boring again’ by John Kay | Prospect Magazine January 2009 issue 154]
Now this is a meme that surfaced some time ago on this blog.
I went along to a seminar, kindly hosted by Barclays, to take part in a discussion organised by the Centre for European Reform on the future of retail banking in Europe. David Shirreff, the Frankfurt business correspondent for The Economist, has written a pamphlet for the Centre called “European Retail Banking: Will there ever be a single market?” [PDF].[From Digital Money Forum: Euros centric]
David’s pamphlet made broadly the same recommendation but I think John may have hit upon the right language to propagate the meme, and I’ll do my best to help for what it’s worth. The reason that I was thinking about John’s piece was that I happened to be working through some of the implications of PSD with one of our customers, and it occurred to me that while we tend to think of PSD an opportunity for new players to come into payments, it may have just a big an impact on existing banking players: this is because it may be an opportunity to create subsidiaries or joint-ventures as more lightly regulated PSD entities and separate them from other banking businesses.
These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]