More than 50 years ago, banks also leveraged financial technology to adapt to new conditions with the introduction of automated teller machines. In 2020, they are doing so again through digital computers. finews.asia takes a trip down memory lane.

Barclays launched the world’s first ATM ready for commercial use in London’s Enfield High Street during the summer of 1967 – coincidentally a year that also included a foot-and-mouth outbreak in the country – commissioning an engineering team led by John Shepherd-Barron of De La Rue, stationer and banknote printing company.

Although information technology systems in banking began thriving well into the 1950s as the industry invested in its first-ever batches of mainframe computers, it was not until 1965 that Shepherd-Barron considered bringing ATMs to the market. After allegedly being inspired in his bathtub by chocolate bar dispensers to create machines that dispensed cash instead, Shepherd-Barron successfully pitched the idea to Barclays' general manager at the time over a glass of pink gin.

53 years later, the industry is once again at a critical inflection point and if the old adage that history repeats itself stays true, historians of banking technology could mark the parallels between 2020 and 1967 in spades. 

Parallel Reductions

In 1967, the banking industry faced two issues that directly hit bottom lines: reduced returns from labor and reduced operating capacity (banking unions in the U.K. applied unprecedented pressure for the industry to close on Saturdays). This was driven by a backdrop of British unionization which was enjoying its golden era before Margaret Thatcher reversed course in the 1980s.

Similarly, 2020 also faces the same issues of reduced returns from labor (due to social distancing measures that have limited worker output) and reduced operating capacity (from closed branches, flight bans, and reluctance against physical contact). 

Although the causes for reduction differ, both times eventually adapted through technological innovation. ATMs satisfied union demands while maintaining business in the same way that digital solutions have satisfied health measures while maintaining business. 

Lukewarm, At First

Another major parallel is the rate of adoption: ATMs and digital banking were both initially rejected for numerous years before the broader market finally opted for embracement.

In the case of ATMs, the technology can be traced back to 1939 when a trial launch of a similar device was rolled out by the City Bank of New York. It was removed after just six months due to lack of customer acceptance with inventor Luther George Simjian saying that «[t]he only people using the machines were a small number of prostitutes and gamblers who didn’t want to deal with tellers face to face.»

Online banking also launched over 20 years before it really took off, in fact, beginning with cell phones rather than desktop computers as European lenders in 1999 leveraged newly enable mobile internet access. Since its debut as 'SMS banking' – a mode of conducting financial services via text messages – digital banking has undergone numerous renditions before finally beginning to gain mass appeal.  

Harder, Better, Faster, Stronger

Although there may be many similarities in the surrounding conditions and the path of technological innovations between the two periods, a notably critical difference is the potential impact in the current chapter. 

While ATMs enabled greater financial services access through smaller spaces, financial inclusion in this period will only be limited by access to the internet. ATMs created more channels to acquire cash while the current digital revolution will even create new forms of cash. ATMs allowed financial workers to take more days off while new technologies enable remote working conditions. ATMs increased efficiency and automated a number of simple tasks while artificial technology promises to take over even complex ones.

In 2009, former Federal Reserve chairman Paul Volker famously said that ATMs were the peak of innovation and the «only thing useful banks have invented» in the two decades prior. Volker was actually criticizing the industry for its misplaced focus on bubble-inducing financial engineering but perhaps the industry could now make him proud and revisit the quote.

Déjà Vu

Although fintech is a buzzword newly introduced into financial services discourse, financial technology has long been relevant within the industry dating back to accounting machines and punch card machines implemented in the 1920s. 

And fintech is far from the only area where the industry has reintroduced an old idea that has once again gained mainstream relevance. 

The emergence of investing based on environmental, social and governance-related (ESG) factors, for example, has roots that trace back to the 1700s when American Quakers prohibited religious society members from participating in slave trade. Prominent advocate and one of the founders of Methodism, John Wesley, introduced numerous principles for socially responsible investing including the now industrywide accepted practice of avoiding ‘sin stocks' – investments in firms linked with firearms, liquor and tobacco.