[Dave Birch] One of the functions of banks has already been changed forever by the Internet, and that’s what economists call the information function. People used to rely on banks to provide certain kinds of information into the market (eg, credit ratings) but a combination of technology-enabled business change and vanishing delivery costs has meant that they are themselves consumers of exactly the same information as non-banks. (This is not the same point as the current debates about the privledged role of “agents” and information asymmetry which focuses on the knowledge gap between bank shareholders and bank managers as a contributory factors in the financial crisis.)
This is hardly new thinking — I can remember discussions a decade ago pointing out that some kinds of information were out of bank’s hands and that (given all sorts of constraints to do with data protection, competition law and so on) the operators of payment networks could use the “data exhaust” from their transaction networks to create information to “turbocharge” other businesses (it was the 1990s, remember). Indeed, I worked on a project for SWIFT to look at his kind of thing in (if I remember correctly) the late 1980s.
Now, advances in “web 2.0” technology mean that this turbocharging is both technically trivial and incredibly powerful, providing ways to create new kinds of information that would never have been generated by banks internally nor made available to the market as a whole. A favourite example of mine, that I originally found thanks to our friends at Payments News, is that courtesy of the New York Fed you can see U.S. bank card delinquency by county, and thus get yourself a real-time map of the credit crunch sweeping across the nation, like bad weather.
Continue reading “And now, time for the money forecast”
