Information wants to be free.
As long-times readers of my posts know, I believe, very strongly, that information and information technology spreads. The spread can be slowed down but in the end the spread of information cannot be stopped.
"I see a world where computing is more ubiquitous and all experiences are powered by ambient intelligence."
"In a world of ubiquitous computing, we want Windows to be ubiquitous. We think about users and their experiences spanning a variety of devices."
This worldview seems to be the prevailing vision in the tech community.
How is the financial community reacting to all this?
Sally Davies in an article in the Financial Times quotes Nick Hungerford, a former wealth manager at Barclays PLC (NYSE:BCS), who is now chief executive of Nutmeg, a two-year old start-up that allows consumers to set up online investment portfolios: "The incumbents make so much money and with such an easy life, why would they change?"
The article goes on to document many of the areas that start-ups are moving into. For example, such things as international money transfer, payments, personal finance and asset management, and crowdfunding are discussed in the article.
Now, big banks are not totally just sitting by and ignoring what is going on. As with the computing industry, itself, some of the bigger institutions are not only supporting the small company start-ups but are financing them as well. They, in effect, are developing a portfolio of apps that they can take over at some time in the future…if the ideas "pan out."
Davies writes "Traditional financial services groups argue that their scale, experience, and brand-as well as the resources they can bring to bear-make them better placed than lone start-ups to offer consumers the choice they crave."
Ms. Davies concludes her article with another quote from Nick Hungerford: "Innovators are nibbling away at the different financial services. One day soon the big banks will turn round and realize that half their sector has been taken out."
Amy Cortese, in the New York Times brings us up-to-date about what is happening in the crowdfunding or the Peer-to-peer (P2P), lending area.
P2P funding has grown and matured over the past two years. It has gained attention and, as a consequence, has attracted more and more business. But, in doing so, others have become aware of it.
Ms. Cortese writes, "Now as he industry matures a new class of investors is storming the P2P gates, and they include the very institutions that P2P set out to bypass. Today, big financial firms, not small investors, dominate lending on the two platforms (of Prosper Marketplace and Lending Club)."
And, the P2P lenders are drawing in high-powered talent to help lead the charge. For example, John J. Mack, the former chairman and CEO of Morgan Stanley, is a director of Lending Club. So is Mary Meeker, former Morgan Stanley analysts and partner at Kleiner Perkins Caufield & Byers. And, so is Larry Summers, former secretary of the Treasury.
But this is not the only place where lending is growing outside the commercial banks. Last year I wrote about Merchant Funding, a source of small business loans. This area is growing very, very fast and the model, which I have observed directly, is for there to be just one office that serves all 50 states. The wonder of information technology!
But, these initiatives are just the tip of the iceberg. In terms of wealth management, we have several large funds that are based up quantitative portfolio management. I have written about these in the past. And, gaining headlines just recently is the electronic trading that has received notoriety in Michael Lewis' latest book "Flash boys."
Remember, money…finance…is just information. Boiled down to the basics, money is just zeros and ones.
As information technology continues to improve we will see more and more innovators get into the "banking" game. And, as we see right in front of us, the expansion will have little or nothing to do with "deposits."
In essence, the new technology is taking out the "middle-man", the depository institutions. Depository institutions evolved because it served as an intermediary between depositors and borrowers. In P2P lending, the "middle-man" is being eliminated.
Will this continue? There is no question in my mind that it will continue. In the classes I taught in the information sciences, one of my basic points about emerging technologies was "Watch what your children or grandchildren are doing." I don't believe that any of my grandchildren have ever been in a bank. What they know is what Mr. Nadella discussed, "ubiquitous computing," and, "their experiences spanning a variety of devices."
Remember that the automatic tellers machines (ATMs) in the early 1970s, did not take off as quickly as a lot of people thought they would. It turned out to be a generational thing. As more and more young people began to use banks, they also found it easier and cheaper, in terms of time, to go to an ATM rather than go into a bank.
As far as investments are concerned, I believe that investors need to consider some of the new initiatives taking place in financial technology, or, "fintech" as some have labeled it. Many, many opportunities are opening up in both the companies that provide the "fintech" but also in companies that a larger community can invest in through the creations of "fintech."
This is the new world opening up. This new world is also becoming accessible to more and more people. You might take a further look at it.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.