|Banks that think longer hours equals innovation are sure to be unsettled as PayPal moves from all-Internet to adding a bricks-and-mortar strategy.|
After TARP, the mortgage banking crises and the demise of Goldman and all the rest, it's a lot to ask a banking investor to think in terms of the threat of technological innovation. But click on PayPal's "In Store" page and you get a feel for the bank profit-killing gun PayPal is waving around. Sign up and you will see that PayPal has managed to engineer a point-of-sale system that does away with traditional debit or credit cards. Never mind that deck of financial identity plastic. The PayPal retail product doesn't even need a smartphone -- just your phone number and an easy-to-remember PIN.
And here we are, yet again, staring down the barrel of the grim big-think of the digital age. For all its huffing, puffing flag-waving and suits and degrees, the financial network is just that -- a network. One that moves digital information around just like the Internet or the phone system. And the same forces of commoditization that have squeezed profits out of publishing and telephony are hard at work in banking. There has never, ever been an incumbent in an information-based economic sector -- we are talking music, news or even the legal profession -- that has not seen its profits vaporized when digital entrants show up. And considering that PayPal is competing against a banking culture that considers free checking and staying open on Memorial Day to be innovation and service, state-coddled American financial institutions are ill-equipped for PayPal's ruthless kind of digital fight. Banks are not doomed. But just like everybody else spiraling down the digital coil, the banking sector is on track to be much, much smaller. And PayPal, which really is nothing more than the checkout table for an online flea market called eBay? It'll wind up being bigger than Bonnie and Clyde. Additional Reporting by Anthony Mowl.