That new thing at Bank of America

The announcement that Bank of America is going to invest in an MIT lab to invent the future of banking was reported by Colin over at BankWatch. He suggests he needs to be convinced of the value of lab based approaches to solving banking problems. Interestingly, someone who identifies as from the Centre of Future Banking – the new lab – also pointed to this announcement in a comment on my "Hard problems in banking" post.

I am a very great believer in academic labs and the ways that they can be leveraged by corporates – there are simply too many success stories out there to ignore. But my hesitation in this case is mainly because I know that dreaming up the "future of banking" is not the hardest part. The hardest part- by far – is getting anyone to agree that what you’ve dreamed up is worth doing. I addressed this point in my post recently on the "Escape velocity of ideas".

In my previous comments on this (see this), I guess my point was that when bankers come up against hard problems, it would be great to have clever academic minds that focus on hard problems to help out. In those cases, we knew how to define the problem, just not how to solve it.

I once had the chance to listen to some innovators in Bank of America talk about their stage gate process, so I know they have a robust methodology behind them. But with a brief as wide as the one that MIT have, I can’t help but wonder how much of the future will actually be able to be invented in isolation from the rest of the industry.

It seems to me that the systemic issues that lead us to consider the future of banking in the first place are industry, rather than specific bank, issues.

Naturally, if MIT invent some killer new channel or product for Bank of America, we’ll all be thrilled to rush in and copy immediately.

Financial services innovations tend not to have very long-lived competitive advantage. To a large degree, thats because the most important things that happen tend to be industry wide (in which case they are automatically replicated by everyone, such as faster payments in the UK, or SEPA in Europe), or there are such low barriers to entry that anyone with a mind to do something can (think of the meteoric rise of peer to peer lending, after the initial seed was sown by Zopa).

Anyway, given all the above, I’d like to thank Bank of America and MIT for investing in research for the benefit of all of us. And if there is anything we can do for you in return, please, just ask.

6 Responses to“That new thing at Bank of America”

  1. April 3, 2008 at 3:18 pm #

    “Financial services innovations tend not to have very long-lived competitive advantage.”
    Agreed. The key for BofA will be to have their product and market people engaged with what’s going on. And I don’t engagement in terms of oversight or getting an occasional update, but rather having someone from those groups who can straddle the line between business and technology. All the innovation in the world is of limited use unless you can make it a part of your business.
    Great article.

  2. Ray Garcia
    April 3, 2008 at 11:52 pm #

    I think the point of the arrangement between Bank of America and MIT is to entice the rest of the industry to act and compete for the future and generate the real innovations that are necessary industry wide.
    I doubt that you are suggesting that the industry of competitors all sit down and agree on what the future should be then hold hands and create it. All innovations in Banking and Finance started with someone having not just a vision but the persistence to make it a reality. Bank of America must have someone who is behind all this that likely already has a vision and is trying to figure out how to make it a reality by solving some really difficult problems first and turning them into real products and services. Bank of Amercia is large enough to move the entire industry so they are in the best position to do this. Only a few other are that large and have the market position to really have an impact.
    I have worked both in large corporation, small start-ups, and academia, and what I have found is that corporation very much need the academic research process to get beyond the obvious, academia needs the purpose and practical application to have a realizable focus and effort. It may take a little time but I suspect that what Bank of America wil come up with working with MIT may transform segments of the industry.
    The other major point to think about is not only that they joined up with MIT but where MIT is located. That market may be more valuable as a test bed than any other so even if all they did was use it as an anchor to the rest of the local market it would be a very good move for them.
    What is more important during this time than to figure out what the economic life of every citizen might be in the future and make it happen in one the most lucrative markets in the country?

  3. April 4, 2008 at 1:38 pm #

    Great article.
    “dreaming up the “future of banking” is not the hardest part. The hardest part- by far – is getting anyone to agree that what you’ve dreamed up is worth doing.”
    I am going to remember that statement!

  4. April 5, 2008 at 3:08 am #

    “The hardest part- by far – is getting anyone to agree that what you’ve dreamed up is worth doing”
    There is certainly that problem.
    But my greatest hesitation in such an investment lies more in the fact that most Banks could see most of “world of rapidly changing social, economic, and information landscapes” by themselves.
    I hope its not just another way of having an external party/ consultant tell them what they should know. I echo Dans commment.

  5. April 7, 2008 at 7:29 am #

    Colin and others,
    Looking at my own thinking, I know that much of it is influenced by third parties. Of course banks are aware of key trends and technologies as they happen, but it is the application which is important. So many times, someone outside has triggered an ah-ha moment for me on the basis of information that I already had.

  6. proslaviy
    September 16, 2008 at 2:32 am #

    Hi, how I can send PM?

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