“MPs who destroy the jobs of others should lose theirs.. so I beg and urge you to write to yours..” - Peter Hitchens, The Mail on Sunday, 28th November 2020.
The Castle Church at Wittenberg, situated on the river Elbe in Germany, once hosted an extraordinary collection of relics, more impressive even than the current composition of the British parliament. The collection had begun with a genuine thorn from the crown of Jesus, certified to have pierced Christ’s brow.
Frederick the Wise, the elector of Saxony, diligently built up the collection to such an extent that by 1509, it numbered over 5,000 individual pieces. Under the Catholic system known as ‘indulgences’, whereby charitable donations could earn sinners respite from the fires of hell, the overall Wittenberg collection was calculated to reduce purgatory by 1,443 years.
It included one tooth of St. Jerome, four pieces from St. Augustine, four hairs from Our Lady; three pieces of her cloak, four from her girdle, and seven from the veil sprinkled with the blood of Christ.
The relics of Christ included one piece from his swaddling clothes; thirteen from his crib; one wisp of straw; one piece of the gold brought by the Wise Men and three of the myrrh; one strand from Jesus’ beard; one of the nails driven into his hands; one piece of bread eaten at the Last Supper; one piece of the stone on which Jesus stood before he ascended into heaven; and one twig from Moses’ burning bush.
By 1520, the collection had swelled to 19,013 holy remnants. Those who viewed these relics on All Saints Day, the first of November, and made the stipulated contributions might receive from the pope indulgences for the reduction of purgatory, either for themselves or for friends or family, to the extent of 1,902,202 years and 270 days.
In 1516, Johann Tetzel, a Dominican friar and papal commissioner for indulgences, arrived in Germany, having been sent by the Roman Catholic Church to sell indulgences and raise money
for the rebuilding of St. Peter’s Basilica in Rome. Tetzel was thought to have popularized the following jingle:
“As soon as the coin in the coffer rings, the soul from purgatory springs.”
A recently appointed priest, Martin Luther, took great exception to this mercenary trade in indulgences, and three times during sermons in 1516 he spoke critically of the practice. He saw the purchase of indulgences as extremely dangerous and likely to make worshippers complacent, and neglectful of their earthly duties.In October 1517 Luther wrote to his bishop, Albert of Mainz, enclosing within his letter a copy of his “Disputation of Martin Luther on the power and efficacy of indulgences”, otherwise known as “The Ninety-Five Theses”. Some accounts have Luther nailing a copy of the Ninety-Five Theses to the door of the Wittenberg church.
Luther’s attack on Catholic doctrine was always going to be contentious, at least at a local level – the sale of indulgences also supported the Castle Church and his university. But Luther probably had little idea at the time that his protest would go on to ignite the broader Protestant Reformation and cause a schism within the Catholic church itself. He probably had no idea he would change his society and the progress of religious thought completely.
Roughly 500 years later, a new iteration of Luther’s Ninety-Five Theses sprang up. As befits the content of this latest polemic, it was first published online, in April 1999. Its web address was, and remains, www.cluetrain.com.
‘The Cluetrain Manifesto: the end of business as usual’ was the brainchild of four visionaries and technologists: blogger Christopher Locke; columnist David ‘Doc’ Searls; philosopher David Weinberger and entrepreneur Rick Levine. Its essential premise is that:
Networked markets are beginning to self-organize faster than the companies that have traditionally served them. Thanks to the web, markets are becoming better informed, smarter, and more demanding of qualities missing from most business organizations.
Or to put it another way, the Internet really does change everything.
You can read each ‘thesis’ at the website, but of the original 95 a few stand out; among them:
Slowly but surely, or in fact quickly and surely, the web and networked markets are dismantling or reinventing traditional businesses across the economic landscape. The music industry was clearly an early victim of digital media. Napster may not have won, but Big Music largely lost.
And who would have thought – at least from the vantage point of the late 1990s – that a pure technology company, Apple, would end up being the dominant seller of music in the early years of the 21st Century ?
Then it was publishing. Clearly, any business whose end product was capable of being digitized was now at the mercy of the digital economy. Newspapers buckled under the threat from blogs, aggregators and Google; while booksellers got crushed under the relentless efficiency and superb sales service offered by Amazon. (Full disclosure: we are contented Amazon customers, but not stockholders.)
Who’s next? The Internet represents a war on multiple fronts for a host of industries, but the one most vulnerable to the next wave of disruptive technologies is arguably the one that deserves it most: the banking sector.
There’s a quotation that’s attributed to Bill Gates of Microsoft back in 1994:
Banking is necessary, but banks are not.
And at the turn of the millennium, Josef Ackermann, the CEO of Deutsche Bank, then one of the largest banks in the world rather than a mouldering wreck, commented that what he feared most was not his traditional competitors, but rather the rise of near-banks and non-banks.
In the words of Sean Park, the world is now experiencing a ‘Cambrian explosion’ of innovation in financial services – he’s referring to the period in world history known as the Cambrian era, roughly 540 million years ago, in which there was a Darwinian explosion of new forms of multi-celled life.
This is the period when the diversity of flora and fauna throughout the world suddenly started to resemble the jumble and complexity in the natural world that we can see today. For those who embrace the vast opportunities in technology-enabled disruption in financial services, the rewards may be vast. For those who fail to embrace them, on the other hand (we’re thinking primarily the banking incumbents here), the fate of the dinosaur awaits.
During the darkest days of the GFC, global central banks pumped over $8 trillion into the banking system and their leaders were lionised for having helped “save the world”. The cost of “saving the world” turned out to be more than the cost of World War 2, the first Gulf War, the Apollo moon landings, the clean-up after the Japanese tsunami, and the entire African aid budget for the last 20 years, all put together.
Bankers responded to the public backlash as you might expect. Badly. They rallied to claim that public opinion was unjust; that they had a right to make a profit (this observation from Bank of America’s Brian Moynihan); that bankers needed to get huge bonuses, irrespective of the health of their employers, because otherwise they would jump ship to competitors; that they were sick and tired of getting flak from customers who had no idea how banks or the banking system worked.
Or perhaps it came down to a slow realisation on the part of the public that as bookshops, video rental stores and other mainstays of the physical retail world were morphing into other things or reforming online, banks now appeared staid, old-fashioned, greedy, and resolutely out of touch. As the British home secretary described his own department in 2006, our banks today are “not fit for purpose”.
Consider the consumer segment known as ‘the millennials’. This is the fastest growing generation of US bank customers – those born between 1977 and 1995.
Their attitudes towards banks are radically different from those of their parents.
All four of the leading banks are among the ten least loved brands by millennials. The millennials have already come to appreciate that the emperor wears no clothes.
53% of them don’t think their bank offers anything different from other banks. And they’re right.
71% of them would rather go to the dentist than listen to what banks are saying. The millennials inhabit a world of pure Cluetrain. They have all stepped on board and got a clue.
Brett King is the founder of the world’s first mobile direct bank, Movenbank. He is also the founder of the International Academy of Financial Management, a professional association focused on financial services.
“Everything about retail financial services,” writes Brett in his book ‘Branch Today, Gone Tomorrow’,
that relies on outmoded physical artefacts, proprietary and outdated networks, and processes that are complex and unwieldy – all lend themselves to disruption. If you can think of a better way to do your banking, then you already realise that the current status quo is not sustainable. In today’s environment, if you can imagine it, then someone is probably building it.
If you are an incumbent player you might argue, for example, that NFC [Near Field Communication – a short-range wireless technology that enables the exchange of data between devices over roughly 10 centimetres] requires critical mass to reach adoption, but so did the Internet, so did music downloads, so did Wikipedia and electronic stock trading. The question is, do you wait until the disruption takes place to start planning for the new reality ?
..There are four key phases to these behavioural changes and we are already at the third phase, and it is the game-changer – the loss of physicality and the mobilisation of payments. The fourth phase, the unhinging of the basic bank account from the bank, will occur gradually over the next decade, and banking will never be the same again because banking will be everywhere, and anyone can provide the utility of a bank. The rise of the “de-banked” [those who chose to abandon traditional bank relationships in favour of prepaid debit cards, mobile payments and other workarounds to banking as usual] is evidence of the growing trend of consumers who value the utility of banking over banks themselves.”
When the world’s bank account is a mobile phone – who exactly is the bank ?
What to call this extraordinary period of technological development and Schumpeterian creative destruction, which will deliver the traditional Wall Street and High Street banks precisely the fate that their obnoxious, criminal CEOs deserve ?
How about ‘The Great Reset’ – Part II ?
Tim Price is co-manager of the VT Price Value Portfolio and author of ‘Investing through the Looking Glass: a rational guide to irrational financial markets’. You can access a full archive of these weekly investment commentaries here. You can listen to our regular ‘State of the Markets’ podcasts, with Paul Rodriguez of ThinkTrading.com, here. Email us: firstname.lastname@example.org.
Price Value Partners manage investment portfolios for private clients. We also manage the VT Price Value Portfolio, an unconstrained global fund investing in Benjamin Graham-style value stocks and specialist managed funds.
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