Although for basic banking services little personal contact may be necessary, deals in such fields as corporate finance and investment banking appear to require interaction between a number of parties  BIS Review 59/2001  3  face-to-face. Indeed, in recent years the world's major financial centres may, if anything, have become more rather than less dominant as a result of the demonstrable benefits of co-location and critical mass particularly in the context of the higher value-added activities. How does the internet fit into this picture. The new dimension which the internet brings is to revolutionise the access of customers to banks – and banks to their customers. Already we know that huge numbers of customers have moved over to using the internet to carry out their basic banking business. This may in turn have enabled banks to realise cost savings, although it is as yet not easy to find hard evidence to this effect. The implications for the structure of banking are unclear. One may envisage two extreme outcomes. One would be where banks, both established ones and new ones created as internet-only providers, compete fiercely in all areas of banking where human contact is not required. Consumers flit around from one to another in response to the best deals, splitting their banking relationships across a number of banks if that appears cost-effective. The prices of these services are driven down to "commodity" levels. None of the banks makes much of a profit from it.
The essential raison d'être of banking is that an economically advancing society needs effective intermediation between savers and borrowers, and mechanisms for making payments efficiently. As already noted, the initial basic intermediary function of providing deposits and loans expanded subsequently into the organisation of alternative channels of intermediation such as bonds and equities (these activities may be conducted in some jurisdictions outside the narrowly defined banking sector, but the distinction is not material in the present context). Although it is human nature for savers to complain that the returns are inadequate, and borrowers that costs are extortionate, in the marketoriented economies competition in financial intermediation has mostly been quite intense, and most of us would probably agree that this has worked to the increasing benefit of customers on both sides of the balance sheet. Meanwhile, the provision of payment services has developed markedly at both the wholesale and retail levels. Banks are at the centre of this activity, typically supported by the central bank as ultimate provider of liquidity. In fact, whereas many other types of institution may nowadays be involved in lending money or providing avenues for savings, banks themselves remain firmly at the core of the payments system. A sound and efficient payments system is acknowledged to be a prerequisite if an economy is to realise fully its potential.