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To Autonomy and Beyond

05 September 2019

Charlie Parnell, Partner and Investment Manager

My first real experience of dealing with money outside of the safety of parental contributions to my piggy bank was characterised by a combination of terror and guilt. Upon arrival as a pupil at a very minor boarding school, my termly allowance was deposited with the Assistant Housemaster who also played the part of "House Banker". The money was held in a good old-fashioned cash box and accounted for in a handwritten ledger.

The house bank was open at strictly defined times, typically in the middle of lessons, rendering it virtually impossible to get hold of any money during normal working hours. I quickly learned that the time not to knock on Mr Chips' flat door was 10.30 on a Sunday morning. For not only was Chips the Deputy Housemaster and House Banker, multi-talented as he was, he was also the school's karate coach – a truly terrifying proposition. Bangs on his door asking "Please sir, could I take some money out of the house bank?" went down very badly.

However, liberation was soon at hand as I entered the 20th century and opened a bank account, after which I was free to withdraw to my heart's content. Until, of course, it ran out. It was only at university that the bank started to feed me a diet of debt with the dreaded overdraft, setting me on a slippery slope of credit card dependence. Nevertheless, since the first card-based Automated Teller Machine (ATM) opened for business in New York in September 1969, we have enjoyed an unrelenting path to the financial independence and autonomy that we enjoy today. While putting a man on the moon earlier that summer arguably represents the greatest single achievement in human history, I would venture that the humble ATM has had a far more profound impact on society in the last half century.

Up to that point, banking was conducted face to face in a branch. A manual, inter-personal exercise, all to get a few quid for the weekly shop. Borrowing money, to buy a house for example, was an even more invasive process. By the standards of the ancients, banking in the 1970s seemed super advanced, but the launch of the simple, faceless ATM a mere decade after the first plastic credit card was introduced, served to supercharge the role financial products play in society at a remarkable rate.

Today, we are able to take advantage of an absolute arsenal of consumer-friendly tools that enable us to spend our money, borrow more money and then spend that too. Taking cash out of the hole in the wall unleashed a full spectrum of opportunity, transforming the way we interact with money, ours or other people's, from a limited range of services to a vast landscape of commoditised, easily accessible product. Indeed, the role of the ATM itself is now increasingly threatened with redundancy in the way phone boxes are.

Reason being? We no longer need cash, or a cheque, to pay for things. In fact, in the age of smart phones, we do not even need a physical card any longer. Chip and PIN has replaced the need to sign card receipts; contactless means that we no longer even need to remember a PIN for many transactions. You can get on a train, buy a coffee and pay for your weekly shop with a watch. Looking more broadly again, the rise of the internet, innovative payment platforms and comparison engines gives us almost instant access to every financial product one could want, and quite a few one wouldn't. Making everyday purchases has never been so easy whilst providers fall over themselves (and each other) to find new ways for us to be able to do so. Not only has spending your own money never been easier, but spending other people's money is child's play too.

All of this has engendered competition between vendors and incredible price transparency, not to mention the convenience for the consumer of being able to access products at the touch of a button. No need to book an appointment with your bank manager, no need even to go into a bank at all. In a recent experiment we ran on the desk, a junior colleague was able to have a new credit card approved with a £10,000 limit in less than 3 minutes. Do pass go, do collect £200. All things considered, hugely positive developments for the public who have extraordinary choice, flexibility, freedom and autonomy…and yet, as the financial crisis in 2008 demonstrated, none of this comes without a price and the moral hazard inherent in the system is substantial. In exchange for being treated more and more like adults, surely the quid pro quo is for end-users to behave like adults too.