City & Business: Big banks and weird PEPs

The merger of Barclays and NatWest may be a non-event but there can be little doubt about the overall trend in banking. "There are going to be tons of mergers worldwide," says Robin Monro-Davies, the veteran bank watcher at IBCA. "Banking is going the way of other industries. Oil. Cars. Supermarkets."

This sounds ominous - a few giant banks spanning the globe, squeezing mere mortals like the head of a local metal-bashing company. In fact, the surviving mega-banks will probably become as boringly predictable as Ford or Shell. The action in financial services will be in the boutique end of the business.

The reason for this, as Mark Carrington, Philip Langguth, and Thomas Steiner suggest in their esoteric but interesting new tome, The Banking Revolution: How Technology is Creating Winners and Losers (FT Pitman Publishing), is that the cost of large-scale information processing technology is falling like a stone. Soon anyone with a good financial idea will find it affordable to build a back office to turn it into a business. The phenomenon of Tesco and Virgin selling PEPs is but a foretaste of the strange world of finance to come.