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MP3's: The New Quick Cash by Bob Lefsetz The music business is lacking visionaries. Last night I watched a PBS program titled Electric Money. Learning is exciting. But it's also informative. You watch a program, read a magazine or a book, and suddenly you think of new ideas for your own business. Electric Money traces the progression of a cash-based society to a digit-based one. It may be hard to believe, but until the '80s, banks were open from 10 till 3. In order to get cash, transfer money, perform any monetary transaction, you had to plan your day. Arrive at the bank during the prescribed hours. And then wait in line for a teller to be free to complete your transaction. I haven't been inside a bank this year. I do all my banking at an ATM. They're all over. Ubiquitous. Not just at bank locations. They're open 24 hours. I can make deposits, transfer money from one account to another and withdraw cash. It takes seconds. And the machine, unlike the teller of old, never makes a mistake. When Walter Wriston proposed a network of ATMs, many banking execs couldn't see the need. Who needed money at ten o'clock at night? Well, it turned out PLENTY of people did. But it all started with the credit card. The founder of the Diner's Club changed suits and found himself without any cash upon presentation of a restaurant bill. He and his two dining partners created the Diner's Club card. BankAmericard followed. But in order to go nuclear, all the banks had to come together. But they didn't want to. They wanted to keep their customers for themselves. And they felt if they went into cahoots with Bank of America, B. of A. would steal their customers. So there was a standstill. Until an exec came along and proposed a whole new system. It would look like one card, but really, every little bank would control its own customers. How could this be DONE? With computers. It was the authorization process. A card is swiped, a signal is sent, even halfway around the world, to the cardholder's bank. If the customer has enough credit, a signal is sent, the money is transferred to the merchant's account at its bank, and the consumer's bank logs a charge. And then there was a revolution. The Diner's Club? The first. It became an also-ran. The problem of traveling with checks? It became a nonissue. Visa, the name the exec exchanged for BankAmericard, to appease the other banks in the consortium, was accepted essentially EVERYWHERE! And the merchant never got stuck. Like with checks. For every purchase was authorized. But BankAmericard is about building a business from scratch. What if you're already IN business? That was the position of Citibank, of which Walter Wriston was chairman. Citibank was big. Very profitable. But really, not that different from Chase and other banks. Walter Wriston wanted an edge. He felt it could be found only with technology. At the time, all checks were sorted by hand. Now you know today, this is all done by computer. But think of the transition. You just don't buy a computer and voila! First of all, the computer, which was also to run an ATM network, had to always be on and never break down. Literally. It had to be built with redundant systems. No such computer existed. Not from the big iron provider, IBM, not from ANYBODY! But venture capitalists had backed a brand-new company. Tandem Computer. Citibank purchased equipment from it. In an era when no one would buy anything but Big Blue. The computer system worked. ATMs were purchased and installed. It cost a f*cking FORTUNE! But within months, the whole system paid for itself. People FLOCKED to this new system. Naysayers insisted people wanted to deal with HUMAN BEINGS! Turned out not to be true. And then with this computer infrastructure, Citibank blanketed the country with credit cards. In short order, Citibank, renamed Citigroup, became the largest purveyor of credit cards and the largest banking institution in America. Technology didn't change only banking. It also changed the stock market. Prior to technology, all trades were done by hand. You've seen pictures of the trading floor on TV. |
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