Why is the ATM the last great banking innovation?  That’s what former Federal Reserve Chairman, Paul Volcker, wonders.

While Silicon Valley has created a tremendous amount of society changing ideas and businesses, Wall Street’s attempts at innovation have mostly backfired.  Instead of Google, ethernet, LinkedIn, the iPhone or eBay, Wall Street can proudly claim credit default swaps, junk bonds, overdraft protection, and market killing computerized trading systems (the New Yorker’s James Surowiecki wrote a nice column on this).  While not exclusively destructive, banking innovation since the 1960’s has done little to improve society in any meaningful and lasting way.

Why is this? It’s rooted in a cultural mindset and technological orientation.  Despite all the hype and vapor, Silicon Valley is driven by populist optimism, idealism and its greatest innovations are based on openness and transparency. Wall Street’s mindset, on the other hand, hinges on pessimism, elitism and its products are closed and opaque. Many people need to lose for a derivatives trader to win.  To this day, we don’t know the real composition of mortgages in a bond.  Where it not for the still relatively obscure peer-to-peer lending movement, people can only easily borrow money from banks, not one another.

While we should be jaded about the dotcom “do no evil” addage, it’s hard to argue with Silicon Valley’s contributions to a more open society and to a tremendous amount of wealth creation. Google, eBay and the iPhone are powerful because they are open to you and me expressing our creativity and entering a global marketplace. Silicon Valley’s open standards (TCP/IP, HTML, XML, SOAP), and even its proprietary communication standards (APIs) leverage our collective wisdom.

If Wall Street could embrace the same aspirations and open technical approaches our credit bureaus might accurately reflect our stability, ability and willingness to pay.  Our trading platforms might be transparent and open to all.  A mortgage might be comprehensible and combine debt from friends, family and banks.  And perhaps our ATMs could pass the torch after 50 years of being the last great financial innovation.  Look West, Wall Street.  Look West.