Because behaviour is adaptive, not rational, we support social institutions that interfere with our freedom of choice. Odysseus had himself tied to the mast to resist siren voices. That is why there are subsidies to pensions and compulsory contributions; taxes on things we know we ought not to indulge in, like alcohol, tobacco and gambling; and subsidies to things we think we should engage in, like libraries, concerts and adult education. Social norms and legislation define the nature of adaptive behaviour in economic life; and we favour norms and legislation which change economic behaviour, including our own. Odysseus would not have been impressed by the argument that the behaviour he fears, being irrational, will not happen, and nor are we.
The ATM has, as Volcker recognised, made a large difference to everyday experience of finance. As has the internet. More and more people now manage their finances through home computers and mobile devices. Yet bank customers do not seem to share the enthusiasm of other users of services transformed by information technology: music aficionados, users of social networks, readers of e-books, online shoppers. The experience of these other industries provides an important clue to the explanation. In music, social media and books, industry disruption was led by new entrants in the face of the resistance of incumbents seeking—unsuccessfully—to retain control and preserve their existing business model. Napster and then Apple marginalised established music labels; YouTube, Facebook and Twitter sent newspapers into decline; Amazon redefined first bookselling and subsequently book production. But a combination of institutional complexity and bureaucratic inertia, buttressed by regulation, has prevented such disruptive change in money transmission. As
The payments system is the heart of the financial services industry, and most people who work in banking are engaged in servicing payments. But this activity commands both low priority and low prestige within the industry. Competition between firms generally promotes innovation and change, but a bank can gain very little competitive advantage by improving its payment systems, since the customer experience is the result more of the efficiency of the system as a whole than of the efficiency of any individual bank. Incentives to speed payments are weak. Incrementally developed over several decades, the internal systems of most banks creak: it is easier, and implies less chance of short-term disruption, to add bits to what already exists than to engage in basic redesign. The interests of the leaders of the industry have been elsewhere, and banks have tended to see new technology as a means of reducing costs rather than as an opportunity to serve consumer needs more effectively. Although the USA is a global centre for financial innovation in wholesale financial markets, it is a laggard in innovation in retail banking, and while Britain scores higher, it does not score much higher. Martin Taylor, former chief executive of Barclays (who resigned in 1998, when he could not stop the rise of the trading culture at the bank), described the state of payment systems in this way: ‘the systems architecture at the typical big bank, especially if it has grown through merger and acquisition, has departed from the Palladian villa envisaged by its original designers and morphed into a gothic house of horrors, full of turrets, broken glass and uneven paving.’6
The answer to information asymmetry is not always the provision of more information, especially when most of this ‘information’ is simply noise, or boilerplate (standardised documentation bolted on to every report). Companies justifiably complain about the ever-increasing volume of data they are required to produce, while users of accounting find less and less of relevance in them. The notion that all investors have, or could have, identical access to corporate data is a fantasy, but the attempt to make it a reality generates a raft of regulation which inhibits engagement between companies and their investors and impedes the collection of substantive information that is helpful in assessing the fundamental value of securities. In the terms popularised by the American computer scientist Clifford Stoll, ‘data is not information, information is not knowledge, knowledge is not understanding, understanding is not wisdom’.9 In