The wifi payments world of the very near future

I was talking about the internet of things again today, and realised that I have a grand vision of the not too distant future where everything communicates with everything.  We have chips as tiny as nanodots inside every brick, pavement slab, tyre, wall, ceiling … you name it.  We have more intelligent chips inside car engines, visual entertainment systems (the TV is no more), wearable devices from rings to necklaces to bags to shoes.  Everything is communicating with everything and our devices are all attached to us through the blockchain.

The result is that my Star Trek vision of no one paying for anything becomes a reality.  I drive to the big city and park.  My car tells the metering system it’s my car and it’s parked here until I come back.  When I come back it asks the system how much it owes and pays.  I do nothing.

My car then drives me to the gas station – I don’t drive anymore as it’s self-driving – and it asks the station robot for $30 of LPG.  The robot pump system delivers and I just sit, working and enjoying the entertainment and world around me.  The car drives off and all of the transaction is seamlessly in the background.

I’ve asked my Tesla to take me downtown to a decent bar – I haven’t been in this town before – and it delivers me to Joes 99er.  I have no idea who Joe is or why he’s talking 99 and I don’t care, I just want a drink.  Joe – or the guy behind the bar – gives me a large Whisky and Bud.  It’s my usual tipple and my shoe just told his stock management system that’s what I’d want.  I felt a little vibration from my shoe that confirmed this would be ordered and just let it go.  It was too much trouble to shake my left foot for a Gin & Tonic.

After three Buds and Whisky combos, I jump back in the car and am ready to hit the casino.  The car asks me three times if I really want to do this – it knows what happened last time – and I just say yea.  I’m cool and mellow and a little bit drunk, something I’m ultra-aware of as I’m supposed to be sober in charge of a self-driving car.  Why that law still exists, I have no idea.

So the car drops me at Caesar’s Shed, it’s kinda five steps down from the Palace, and I start shooting some Blackjack.  My shoe vibrates again, as I’ve just lost $2,000 in the first five minutes and my budgeting balance for the month for gambling has been reached.  But it’s only June 2nd for heaven’s sake.  I stamp my foot and the balance is lifted, along with a healthy top-up of $10,000 moved from my savings account in real-time.

By the end of the evening, my savings are gone and the bank’s given me a loan of $15,000.  I hate it when I click my shoes together and say there’s no place like home.  After all, that’s the trigger for my biometric check to ensure it really is me saying that I want an extra line of credit.  No-one notices the heartbeat check and the touch of my finger to the side of my glasses.  Works every time.

Unfortunately, it works and makes sure that I lose every last dime of my money but then I have this lady who seems to have joined the ride home, and the car is asking where to go.  I say home with an S (for seduction), and the car heads to my destination of choice.

As we arrive, the nest is bathed in purple light.  Ed Sheeran schmoozes Thinking out Loud from the wireless speakers and we’re soon enjoying an intimate moment.  As our bodies touch, something in my ring tells me a transaction just happened.  It is only then, with the combination of my gambling losses and Bud combos, that I realise this is no ordinary woman as I gather she’s not here for a long-term relationship.

In fact, the following morning, as my red eyes open and realise she’s gone, that the sun rises on my virtual walls and my infomediary assistant tells me my account has been frozen.   It just goes to show that the shoes I brought last month really are a bad influence.  Next time, I should stick to the watch.

Ah well, a good night was had by all and not a payment or authentication was visible to all.  Just wireless credits and debits from the stamp of a shoe to the touch of an eyebrow. 

The world has changed a lot in the last ten years.  I remember in 2010, I used to keep lots of pocket change in my car to pay parking metres, and got frustrated with the endless stops at toll booths to swipe my credit card.  By 2015, things had improved immensely.   Now I just had NFC payments, prepaid apps and one time passwords.  No longer would I jiggle around trying to find the right change.  My tech would help me to sort out the detail.  Now, my tech just does it all for me.  I just try to work out : was it all worth it?

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What do narrow banks mean for wide banks?

In this world of choice that emerges from the integration of new technology models and old financial models, we see hybrid systems emerging that bring together the best-of-the-best.  A great example was announced today, as Metro Bank and Zopa join forces.  The deal allows deposits from Metro Bank retail customers to use P2P lending as an asset class for their deposits, with the expectation that this will provide higher returns on their savings.  It’s an innovative deal in that P2P lending surely cannibalises that other asset class: credit.  But it’s all about choice and if customers know that they can place money in Zopa, then why not allow them to do so through the intermediation of the bank to assure its viability?

This is where it gets interesting as I’ve seen innovative deals like this before.  Fidor Bank (Germany) has been offering Smava’s P2P lending for some time through its operations whilst Caja Navarro (Spain), a non-profitable foundation, offered its own version of P2P some years ago.  They called this Civic Banking and gave every customer the right to know the profit they made from each transaction and account.  Through Civic Banking you could also invest in friends and family businesses and loan requests, with the bank ensuring the loan was repaid.

This is the point I am making when talking about aggregating the customer experience.   If a customer has so much choice these days, do they really want to be opening accounts here there and everywhere with eToro, Circle, PayPal, Zopa, Friendsurance etc, or do they want to have an aggregator on top?  I think the new emergent form of retail bank will be that aggregator.  Like a Trip Advisor for travel, we will see front-end services that integrate many back end providers for finance.  Some may say that this is just what the comparison websites do, but the comparison websites are not integrating and aggregating.  They are just providing a rate choice and then you have to jump out to the provider’s own website to complete the transaction.

What I mean by the new component-based bank is that they will find the best providers of alternative finance and offer these services through their own portfolio of access.  A one-time sign-on to get access to choice all in one window.  That’s what Fidor are offering and, through the deal between Metro and Zopa, it’s another step in the right direction.

Meanwhile, a rock to throw.

I was pretty surprised to read these two headlines side-by-side the other day:

The reason I was surprised is that SMEs (Small to Medium Enterprises) are being commonly rejected for credit by banks, because they don’t meet their risk criteria.  They are too small, too young, too untested, too unproven, too risky to lend to.  So banks are recommending they go to Funding Circle and similar alternative finance houses.  These alternative finance houses (AFH’s) opened a lifeline for businesses in the UK in the last year.  For example, here’s Funding Circle’s homepage today:

Funding Circle 200515

And 13 months ago (yes, this was 20 April 2014):

Funding Circle 200414.png

Note the statistics: £225 million of lending enabled by Funding Circle a year ago climbing to £625 million today.  A tripling in enabled funding in just over a year.  

Meanwhile, the number of businesses borrowing through Funding Circle has almost doubled in that time, as has the awareness of this alternative financing marketplace.  A lot of the funding of Lending Club comes from the UK Government, and it’s interesting to note that almost 98% of P2P Lending funds in the USA come from institutional investors.

So you have two key things happening here.  First, the large banks are turning small businesses away to AFHs whilst de-risking their own portfolios by funding the AFHs.  So the AFH becomes the risk manager.

That’s all well and good, but then take the other headline: SMEs stung by £425 million in hidden fees.  This is where the Christensen disruptive innovation does start to hit as the AFH market looks like nothing today but, when I attended an Alternative Financing conference the other day, they didn’t call it alternative finance (which was a bit strange, as that was the name of the conference).  They called it narrow banking.  Narrow banking takes a part of the bank – a component – and squeezes that component to make it as efficient as can be for the process of its usage.

Here, in lending, it is a narrow bank focus on SME and consumer credit.  A Funding Circle or Zopa squeeze the process of getting funds to those who need them to the max.  And their customers love it.  77% of Funding Circle users say that after their first loan, they would return to Funding Circle first next time, rather than a bank.

So, on the one hand, banks are de-risking their credit portfolios by both funding narrow banks and encouraging their higher risk customers to use them.  On the other, they are stinging their higher risk customers – small business customers – with higher hidden fees.  And, on the third hand (yes, doing well here with my artificial limbs business), their customers now love their narrow bank and would not return to their old bank in the future.

That’s a broken model if you ask me.  Broke for the bank that is, unless it really does not want any SME or consumer credit market operations in the future.

What banks should be doing is the Metro, Fidor and Caja Navarra approach of integrating the narrow bank offers into their customer aggregated experience.  Instead, what RBS and Santander who partner with Funding Circle appear to be doing is saying that we would rather offload you to the narrow bank, than keep you with our bank.

That may be just my misperception, but it’s one that sits uncomfortably if true.


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Why banks (and PayPal) don't simplify

As the internet reinvents commerce on this planet, it’s interesting to see the two things that enter the innovation mix: simplicity combined with connectivity.  When you think about the Uber, Airbnb, Facebook, Google, Amazon and more, you realise that they have all simplified some complex things from sharing to finding.  Google’s home page has stayed pretty much the same since day one.


Clear, clean and simple, it’s a SEARCH engine.  It helps you find stuff.  It’s easy.

You don’t think about the complexity of the thousands of servers that are indexing everything non-stop.  That’s the complex stuff that sits behind the simple home page.  You don’t think about the connectivity needed to do this.  The fact that Google is linked into every server on the planet to index the internet.  You just assume the homepage is there and will find stuff. 

It’s all simplified through global connectivity.

The same is true with Facebook.  You share your life with your friends, from links to funny videos of cats and babies to pictures of your own cats and babies.  You don’t think about the complexity of the thousands of algorithms required to tag, link, upload, organise, store and manage all your stuff.  You just want to share stuff.  You don’t realise how Facebook is getting smarter and smarter.  You just want to connect with your friends and family.

Amazon is the same.  Again, you’re just buying things you like.  It’s simple and easy.  You don’t think about how Amazon has created a global store of everything through connectivity to every sales outlet.  You just buy things.  You don’t think about how Amazon can read your mind and predict the next things you want to buy through indexing all purchases through meta-tags.  You just enjoy the fact that it has suggested that you might want that next book by Anna North.  You just like the fact that it can read your mind and your tastes.

Uber and Airbnb are doing something different however.  Rather than simplifying how you find, share and buy things, they have simplified marketplaces.  The taxi market was fragmented and disorganised.  Uber organised it.  In this case, the simplification is through connectivity rather than complexity.  Uber’s purely connecting people with cars through an app with people who need driving.

Airbnb saw a similar opportunity to sell spare space by connecting people with rooms to people who need rooms.  It’s the P2P connectivity that provides the simplification of markets (transport, lodging), rather than purely simplifying activities (finding, sharing, buying).

Which brings us around to banking.  What activities can we simplify in banking and which marketplaces could be simplified through connectivity?

These questions have already been answered in some areas.  PayPal and Alipay simplified the activity of paying by providing a layer over the traditional complexity, called an email.  Prosper and Lending Club have simplified the credit markets by providing connectivity between those who have money and those who need it.

Paying and enabling credit are the narrow areas of finance being attacked by simplification, but what else could be flattened by connectivity.  I must admit that when I look at this chart from CB Insights (doubleclick image to see a larger version):

Unbundling of a Bank

It really makes me take note, as any financial activity can be levelled by technology.  Any financial activity can be simplified.  Any financial marketplace can be flattened by connectivity, peer-to-peer, person-to-person.

This is why banks must change tack, and become integrators and aggregators of components of finance.  A bank cannot compete with a specialist who is simplifying a marketplace or financial activity.  Instead, they need to work with the simplifiers and incorporate their best practices into their own.  This is why the likes of Moven and Fidor are being brought into bank operations as partners.   This is why the likes of Venmo and Braintree are brought by PayPal.

Any incumbent player who tries to resist the onslaught of the simplifiers is going to fail, because the simplifiers are reinventing activities and markets overnight.  My favourite current example in fact, is Venmo.

If you don’t know the story, Venmo was invented by two mates during a long weekend.   The whole story is here, but the gist of the story goes like this:

One of the weekends we were getting together to work on this idea, Iqram was visiting me in NYC and left his wallet in Philly. I covered him for the whole weekend, and he ended up writing me a check to pay me back. It was annoying for him to have to find a checkbook to do this, and annoying for me to have to go to the bank if I wanted to cash it (I never did). We thought, “Why are we still doing this? We do everything else with our phones. We should definitely be using PayPal to pay each other back. But we don’t, and none of our friends do.”  So we decided, let’s just try to solve this problem, and build a way to pay each other back that feels consistent with all of the other experiences we have in apps we use with our friends.

After four years, Venmo is now processing almost $4 billion in social payments a year and was acquired first by Braintree in 2012 (for $26 million) who were then, subsequently, acquired by PayPal.


Could PayPal invent Venmo?


Did PayPal invest Venmo?

No way.

Why didn’t PayPal invent Venmo?

Because simplification comes from kids and complexity comes from incumbents.

The incumbents are too dogged in their own complexity to see simplicity in too many cases.  That’s why banks spend all their time talking about regulations, regulations, regulations, whist Fintech start-ups talk about innovations, innovations, innovations.

The startup has the excitement of simplifying complexity; the incumbent has the weariness of dealing with complexity.

That’s why Fintech is so hot – because it’s reinventing financial activities and simplifying markets.  Watch this space for more.


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Fintech is hot, hot, hot

I was flicking through the Economist this week and was surprised to see a big quarterly special all about Fintech.  Wow, this stuff is hot, hot, hot.  That’s what the magazine makes clear:

From payments to wealth management, from peer-to-peer lending to crowdfunding, a new generation of startups is taking aim at the heart of the industry—and a pot of revenues that Goldman Sachs estimates is worth $4.7 trillion. Like other disrupters from Silicon Valley, “fintech” firms are growing fast. They attracted $12 billion of investment in 2014, up from $4 billion the year before.  

The magazine probes these areas in depth, citing Lending Club, Venmo and others on my list as disruptors and concludes that: “the bigger effect from the fintech revolution will be to force flabby incumbents to cut costs and improve the quality of their service. That will change finance as profoundly as any regulator has”.

In other words, the industry does not disappear, just the big, fat, lazy players.  I agree.

By coincidence, this article hit my radar the same day as the great guys over at Finovate were running their annual West Coast bash.  In preparation for this, Jim Bruene posted a list of Unicorns – start-up firms founded since 2000 that have achieved over $1 billion valuations – and notes that the list has tripled over the preceding year, from just 11 companies in 2014 to 35 in 2015.  Simlar to other lists, a third of these are in lending and credit markets and a third in payments – that’s where the action si ffolks.

With a big thank you to Jim for compiling this, here’s the names of the biggest Fintech firms around:

1. Lufax (Lending)

2. LendingClub (Lending)

3. Square (Payments)

4. Zillow (Real estate)

5. Zenefits (Insurance)

6. Stripe (Payments)

7. Powa Technologies (Payments)

8. Klarna (Payments)

9. Xero (Accounting)

10. CommonBond (Lending)

10. CreditKarma (Credit Reports)

10. Oscar (Insurance)

10. One97 (Payments)

14. Prosper (Lending)

15. Dataminr (Analytics)

16. Zuora (Payments)

16. FinancialForce (Accounting)

16. LifeLock (Credit Reports)

16. Adyen (Payments)

20. iZettle (Payments)

21. SoFI (Lending)

21. (Real estate)

21. Qufenqi (Lending)

21. Revel Systems (Payments)

25. On Deck (Lending)

26. FundingCircle (Lending)

26. Jimubox (Lending)

26. Kofax (Doc mgmt)

26. TransferWise (Payments)

26. Trusteer (Security)

26. Mozido (Payments)

32. Avant (Lending)

32. IEX Group (Investing)

32. RenRenDai (Lending)

32. Coinbase (Bitcoin)

32. ClimateCorp (Insurance)



Wonga (Lending)
Wealthfront (Investing)
Rong360 (Lending)
Betterment (Investing)
Braintree (Payments)
Q2 (Banking)
WorldRemit (Payments)
Taulia (Payments)
Radius (Marketing)
Oportun (Progreso Financiero) (Lending)
Circle Internet Finance (Bitcoin)
AnJuke (Real estate)
Kabbage (Lending)
EzBob (Lending)
FangDD (Real estate)
VivaReal (Real estate)
Motif Investing (Investing)
Snowball Finance (Investing)
PolicyBazaar (Insurance)
Credorax (Payments)
Cardlytics (Marketing)
Zopa (Lending)
CAN Capital (Lending)
Receivables Exchange (Lending)
Affirm (Lending)
Ayadsi (Analytics)
21 Inc (Bitcoin) (Payments)
FreeCharge (Payments)
U51 (Lending)
Financial Software Systems (Risk Mgmt)
Strategic Funding Source (Lending)
Ping Identity (Security)

Source: Compiled by Finovate, 8 May 2015


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Repeat after me: Bitcoin Bad, Blockchain Good

I wrote a while ago about the contrast between the innovators (jeans and beers) and regulators (suits and canapés) and was struck by this again as I attended EBADay in Amsterdam.  Like SIBOS, EBADay is attended by the best people in transaction banking and payments, and they all wear suits and ties.

The focus of these meetings is often on a regulatory dialogue, and EBADay didn’t let us down with panel sessions on BASEL III, Beyond SEPA, The Regulatory Hurdle, PSD2, ISO20022 XML, Financial Crime and Security and so on and so forth.  There was a bit on the blockchain too, and here is really struck me that things were awry.

I’ve been tweeting a while that bankers are all repeating the mantra Bitcoin Bad, Blockchain Good.  This rallying cry is now so strong that if you challenge it – is bitcoin really that bad? – everyone quashes the discussion.  I’m now of a mind that the majority quash such discussion because they really don’t know what bitcoin is about.

Reid Hoffman – the co-founder of LinkedIn and early investor in PayPal and Facebook – talks about this in Wired this month.  Interestingly, Reid only got interested in bitcoin two years ago after meeting Wences Cesares, who interview featured on the blog in March.  Reid says a few interesting things in this space.

“There are three aspects to Bitcoin that are interwoven … One, it’s an asset, like digital gold 2.0. Two, it’s a currency in as much as currency is like the digital app that allows you to begin to transact and trade. And, three, it’s also a platform where you can build financial and other products on top of it. These attributes all bound together are what convinced me that there’s a certainty that there will be at least one global cryptocurrency and that there’s a good argument that it’s Bitcoin, or that Bitcoin is one of them, if not THE one.”

He goes on to talk about how other VCs and protagonists are dissing bitcoin and says that this pleases him, as he’s investing for the long-term and the long-term says that bitcoin, or a relation, will win.

Now, back to the banking audience, and they’re talking Ripple – Chris Larsen was the opening keynote here – and, since I arrived, I’ve heard this mantra about Bitcoin Bad, Blockchain Good. 

So why would someone as intelligent and informed as Reid Hoffman – and Marc Andreessen, Richard Branson, Wence Cesares, Jon Matonis, et al – be so pro-bitcoin when the banks are not.  My answer is that most of the people dissing bitcoin haven’t looked under the hood.

So here are two test questions for all of you reading this and thinking Bitcoin Bad, Blockchain Good. 

One, have you actually read Satoshi Nakamoto’s white paper?

Two, can you explain to me exactly why the blockchain is good?

I don’t do this, as I don’t want to embarrass anyone, but I’m guessing that 99% of the Bitcoin Bad, Blockchain Good people would answer no to both questions.

So, to help you along the way, here is Satoshi’s white paper and the abstract pretty much summarises what you need to know (but read the rest anyway as I’m going to test you on it):

A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution. Digital signatures provide part of the solution, but the main benefits are lost if a trusted third party is still required to prevent double-spending. We propose a solution to the double-spending problem using a peer-to-peer network. The network timestamps transactions by hashing them into an ongoing chain of hash-based proof-of-work, forming a record that cannot be changed without redoing the proof-of-work. The longest chain not only serves as proof of the sequence of events witnessed, but proof that it came from the largest pool of CPU power. As long as a majority of CPU power is controlled by nodes that are not cooperating to attack the network, they’ll generate the longest chain and outpace attackers.

Here’s a quick explanation of the blockchain that works well for me from the

The block chain is a shared public ledger on which the entire Bitcoin network relies. All confirmed transactions are included in the block chain. This way, Bitcoin wallets can calculate their spendable balance and new transactions can be verified to be spending bitcoins that are actually owned by the spender. The integrity and the chronological order of the block chain are enforced with cryptography.

A transaction is a transfer of value between Bitcoin wallets that gets included in the block chain. Bitcoin wallets keep a secret piece of data called a private key or seed, which is used to sign transactions, providing a mathematical proof that they have come from the owner of the wallet. The signature also prevents the transaction from being altered by anybody once it has been issued. All transactions are broadcast between users and usually begin to be confirmed by the network in the following 10 minutes, through a process called mining.

And here’s why bitcoin is integral to the blockchain: because the blockchain does not work without a native cryptocurrency, and why would you create an alternative to bitcoin when over 90% of all cryptocurrency transactions are based upon bitcoins?

Maybe that’s why Nasdaq is using bitcoin as the blockchain currency to record securities settlements:

Nasdaq will leverage the Open Assets Protocol, a colored coin innovation built upon the blockchain. In its first application expected later this year, Nasdaq will launch blockchain-enabled digital ledger technology that will be used to expand and enhance the equity management capabilities offered by its Nasdaq Private Market platform. Nasdaq’s blockchain technology will offer efficient, fully-electronic services that facilitate the issuance, transfer, and management of private company securities.

And no, they may not mention it in the press release, but yes, Nasdaq is using bitcoin as the native currency for their blockchain developments.

So please stop being parrots and squawking Bitcoin Bad, Blockchain Good as some parrots are Norwegian and may find themselves in a Monty Python sketch if they don’t watch out,.



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Goldman Sachs estimate 20% of bank lending will move to alternative finance ($12bn of profits lost)

One of my good connections via social media is Huy Nguyen Trieu.  Huy writes a regular blog at Disruptive Finance, as well as being a Managing Director for Macro Structuring at Citi.  He posted something in the last week that I felt was worth re-posting here as a guest blog.  Read and weep.

If you can’t beat them, join them: Goldman Sachs enters Fintech

Goldman Sachs has been a very active investor in Fintech (and Tech in general), with the latest investment in Circle (Bitcoin), but also CompareAsiaGroup (Comparison website for financial services), Oscar (Challenger Insurance) or Kensho(Data analytics for finance) for example.

But what caught my eye was the very detailed research they published a couple of months ago about how non-bank lenders will take away business from banks.

Their conclusion was that :

  • US banks earned $150bn profit from lending in 2014
  • In 5 years, $11bn of these could be captured by non-bank lenders – and in particular online lenders such as Lending Club, Prosper, SoFi, Kabbage etc.
  • The table below (click image to enlarge) shows very clearly what are the areas they have in mind, and the competitive advantages of the online lenders.


Non-Bank Lenders will take away profit from Banks says Goldman Sachs
Source: Lend Academy 

The research document is very interesting, and shows that GS had clearly identified a very important trend in lending – and a potential threat to banking profits.

But then investing in Fintech and writing good research is not really a game changer, so what did they do?

They announced that they will build an online lending activity,  within the bank itself: ” Goldman Sachs Group Inc. hired Harit Talwar, the head of Discover Financial Services’ U.S. cards division, to help develop an online lending effort for individuals and small businesses…is seeking to join startups such as LendingClub Corp. in using technology to disrupt traditional banks.” (Bloomberg, May 2015)

And that is very interesting indeed, because we’ve had from Goldman Sachs:

  • Investing in and working with the Disruptors
  • Analysing the Disruptors
  • And now, Disrupting the Disruptors! 

Which seems very simple said like this, but to my knowledge this is the first such initiative at this scale.

Until now, there has been a love-hate relationship between online lenders and banks, where banks observed online lenders with interest, but saw them as smallish competitors that were not really taking business away. And banks were even happy to partner with online lenders like Santander with Funding Circle.

Now, with Goldman Sachs’ announcement, both Lending Club and Ondeck had to justify why GS would not be a threat. This is a game changer in my opinion, with banks having to ask themselves the question: how should online lending be part of their strategy? Should they partner with startups or develop their own solutions? 

And what kind of online lending? Is it data-driven lending a la Kabbage or Ondeck? Is it p2p (b2p, b2b, p2b?) platforms a la Lending Club or Funding Circle? Is it invoice-financing a la Finexkap or MarketInvoice? It seems from the first reports that GS will focus on a Kabbage model – i.e. data-driven lending – but it would definitely make sense to have some disintermediation component for their institutional investors (i.e. p2p).

Going forward, this will obviously impact more than just online lending. It will be fascinating to see what happens over the next few months, and if other banks follow suit.

For updates on Disruptive Finance and Fintech, follow Huy on Twitter here


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Moving from banks as money stores to value stores

I’m talking a lot about the ValueWeb – how the internet is changing the things we value in banking, trade and commerce as well as life, love and relationships – at the moment, as this is the subject of my new book.

One of the most intriguing things about the ValueWeb is the latter – the ability to create value out of nothing but a relationship. 

We all value our relationships.  Our friends and family are probably more important to us than our work and salary, or they should be although it doesn’t always work that way.  It’s a bit like we used to talk about work-life balance, where our work was day and life was night, but that’s gone away in the networked economy.  Now we have work and life 24*7.  When we wake we check our email, facebook and twitter notes to see who’s talking and, before we go to bed, we do the same.  It’s why we are living in an insomniac world, with people tweeting, talking and emailing at all times of day.  We also live in a global community, which is why we’re insomniacs.

Our relationships are now being formed on the network.  That doesn’t necessarily mean love, but certainly our lives are becoming digitised.  We stare at our devices 24*7 looking for meaning, sharing and understanding.  We want to be entertained by our friends and celebrity likes, and we want to find knowledge and interest from sources as diverse as the Economist and Pew Die Pie.

This is the age where traditional media has become fragmented and social media has gained a voice.  A voice where anyone from a guy blogging naked in his bedroom (truth be told I don’t do that, well, not today anyway) can be as meaningful as your favourite columnist in the paper, or more so.  In mentioning Pew Die Pie, we live in an era where one person can be as influential as the BBC or even more so.  Pew Die Pie has around 40 million subscribers.  That’s more people than the entire population who watch television in the UK.

Some time ago, I noted that free is the business model, because free can be monetized.  My blog is free; Pew Die Pie’s videos are free; most media is free … so how do we make money?  We make money be being relevant.  Relevance and attention are the new value mechanisms that attract investment, not just goods and services.  Relevance and attention demand support and, just like traditional media, will get that support in the form of sponsorship, dialogue and engagement.

My blog is free because I monetize the blog through producing books, speaking at conferences, advising technology firms and banks and generally being an all-round pain.  Pew Die Pie makes over $4 million a year from online adverts that align with his media channel.

Free makes money.   Ideas make money.  Content makes money. It’s all about the value of relevance and attention.  If you get the eyeballs, you get the money.

This is where it gets intriguing as this side of the ValueWeb is untapped by banks, and untapped by many others.  Banks forces upon currency exchange and being a store of money, when they should focus upon value exchange and being a store of value.  A store of value will store everything from your cash and money to your investments and savings to your memories and mementos.

Who stores your memories?

The average baby born in 2015 is forecast to have a lifespan of 150 years.  What will your babies be watching in 2165 as they reach their final year?  Will they still have access to their memories?  Will Facebook still be around?  Will the USB sticks, the Teradata hard drives and the dongles be readable?

Many commentators are concerned about our digital graveyard where all of our digital assets become useless a century from now, when technology has moved forward at such a pace that your valued things today become irrelevant.  The problem is that the things become irrelevant but their value to you does not.  Those photographs of baby growing up are just as important to you today as they will be to your children tomorrow and their grandchildren a century from now, but who will store those memories?

What is a value store?

A value store is what a digital bank will become: a store of all the things you value.  Traditionally, banks have offered value stores in the form of lock boxes in the branch; in the future, the value store might be your Dropbox on the internet.  But do you trust your Dropbox, your social media or your other stores to be accessible a century from now?  Can a bank provide a value store that can guarantee such a thing?

If banks move to being value stores rather than currency stores, then that is exactly what they will do.  Their promise with money is that they guarantee not to lose it and, if they fail, you are guaranteed to get at least €100,000 returned (European rules).

What about if you promise to store my memories.  What guarantee do I get then?  What about a guarantee that you will bank my memories and guarantee they will be accessible forever.  If you fail, then you guarantee to provide reimbursement to the value I insure my memories for.  If I say my memories are worth €1 million, then you can charge me €100 a year (or whatever you feel the premium should be) to store my memories with a guarantee they will be retrievable for 100 years.  Should there be an impact where you fail, I get the million.

This is a tricky course, but there is a far wider role for a bank as a value store than as a monetary store, particularly as we move to a world of digital rather than physical assets. 


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Why the blockchain will radically alter our futures

There’s an interesting debate about blockchains, sidechains and identity taking place that is emergent right now but, soon, will be mainstream.  For those who are unclear about these things, blockchain is the technology protocol invented by Satoshi Nakamoto with bitcoin, although it doesn’t have to be based upon bitcoin.  The blockchain allows you to create a public ledger system that is accessible for all and secure.  This is achieved by having public recording of transactions whilst they are secured by private keys.  As a result, any exchange on the blockchain is secured until the private key is passed along.  At that point, the ledger records the exchange of the key and the movement of a digital asset, and that asset can be anything from a currency transaction to a securities settlement to a mortgage deed to a marriage contract. 

In fact, in order to allow different markets to create different blockchains to record these different styles of transaction, there is now this thing called sidechains.  Sideschains are just spin-offs of a blockchain used to record a specific market transaction, such as house deed sales, and sit alongside the main blockchain.

It is this is the technology that all the banks are excited about, as it allows the exchange of digital assets to be recorded digitally for near free and, for those who read them, the recent case studies with Ripple, Jon Matonis and Jeffrey Robinson illustrate the great debate around this technology well.  The core of this debate is whether this blockchain technology needs to reside on the bitcoin currency.  For some, such as Jon Matonis, this is a given.  Why would you create another currency?   For others, such as Jeffrey Robinson, as soon as blockchains are endorsed and operated using dollar, euro or yen, then why the hell would you need bitcoin?  You can make your own mind up, as this is a sideshow to the emergent discussion about the internet of things and how the blockchain may make it work effectively.

So here’s the scenario in the very near future.

You buy a fridge, a car, a house, a smartphone, a wearable, a whatever.  All the things you buy have clear serial number identifications as well as chips inside to enable them to transact wirelessly over the web.  Upon purchase, your device is recorded as being yours using your digital identity token (probably a biometric or something similar).  That recording of that transaction takes place on the blockchain. 

Now, you have multiple devices transacting upon your behalf.  Your fridge is ordering groceries from the supermarket; your car auto refuels as it self-drives the highways; your house reorders all the things needed for the robot vacuum and other cleansing devices it uses; and so on.

Each transaction is a micro-purchase around your wallet, but involving no authentication of you.  The authentication is of your devices.  Should a large transaction occur, or maybe just to check-in as contactless payments do with every twenty or more transactions, you are request to agree that this is your device ordering on your behalf by providing a TouchID or similar.

And all of this is being transacted and recorded on the open blockchain ledger of your bank cheaply, easily and in real-time.

What this provides is the scenario I keep talking about. The scenario invented years ago by Gene Rodenberry, when he came up with the idea for Star Trek.  Now Star Trek has lots of things that were forecasts of the future that came true from communicators that were the predecessors of Motorola flip phones to body scanners that could be hand held.  One of the other predictions was that we wouldn’t need money.

Did you ever see anyone ever pay for anything on Star Trek?

The reason you don’t need money in the future is that all the transactions you make take place wirelessly around you, through your internet of things.  You walk into a store or mall, and all of your devices and identity are communicating your location and intention.  As a result, you never pay for anything.  You just authorise with the blink of an eye or the wave of a watch.

The future is so bright, I gotta wear shades, and it’s coming within the next decade.  By 2025, the only humans who will be using cheques, cards or cash, will be the ones who are happy to pay the penalty fees charged by the merchants and banks for these transactions.  The rest of us will be using chip-based identities for ourselves and our devices to wirelessly order everything without having to think.


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What is Chris smoking? Of course, we’re being disrupted!

Just to finish off my contention that banking is not being disrupted, just evolved or adapted if you prefer, it’s worth a thought about what would it take to cause a disruption.

First, I don’t think of disruption in a dictionary sense but in the sense that Clayton Christensen meant it in the book The Innovator’s Dilemma. This definition goes as follows:

Disruptive innovation, a term of art coined by Clayton Christensen, describes a process by which a product or service takes root initially in simple applications at the bottom of a market and then relentlessly moves up market, eventually displacing established competitors.

And the question today is whether the Klarna, Holvi, Zopa, Lending Club and brethren are doing the above or not?

To a certain extent, it seems clear that they are.  According to Foundation Capital, P2P lending and crowdfunding will be worth over $1 trillion by 2025 and companies like Apple are taking over the customer wallet.  The counter-argument is that there are banks that sit behind all of these movements, with wholesale markets moving heavily into support of the likes of Lending Club.  Equally, others see markets expanding.  For example, many banks won’t lend to high risk projects r companies.  A new start-up small business will always find it hard to get unsecured lending from the bank, unless they have a robust business plan.  But companies like Kabbage and Funding Circle have stepped into this space and are helping to widen markets.   According to today’s Telegraph, small businesses are getting access to over £2 billion of new funding through alternative lenders.  But then, Funding Circle does partner with banks like Santander to do this, so they’re basically picking up business that banks don’t want.  Is that the disruption?

Possibly.  Today, banks don’t want this business. Tomorrow, it’s their core business that’s gone.  Equally, bank are not helping themselves. Today’s Financial Times“UK banks are charging businesses that need short-term finance £425m a year in “hidden” extra fees, according to research.”

Surely, by giving away future business with one hand whilst sticking two fingers up at existing business with the other, banks are trying to destroy their futures rather than build them?

This should be a concern, but is P2P going to be the massive disruption that some believe is happening, or will banks partner and then merge and acquire with P2P lendersa and crowdfunders.  Maybe the latter is likely if these firms become mainstream.

After yesterday’s blog, Holvi made clear that they have regulation and are also operating in a bank-like manner. 

If it looks like a bank, walks like a bank, smells like a bank, surely it’s a bank?

No.  It’s a payment services provider.  However, if payment service providers started offering core deposits and loans as well as payment services, then yes, they’re a bank and would need a bank licence.  And have Transferwise, Holvi, Funding Circle and their brethren yet really made a mainstream impact on core bank business, or just built around that business?  I would contend the latter today.

But, and here’s the real point of all this, tomorrow.  Tomorrow is the question.  Are these companies that are small beans today relentlessly going to move up market to displace the established firms?

Will the largest financial institutions of tomorrow be a Lending Club or Alibaba?  Over the past few weeks I’ve been arguing no, but maybe you should be asking: does Chris believe this?

The reason I’ve been arguing against the Fintech tide is that many banks will say to me: “we have over X million customers today, and we know what we are doing.  The regulations protect us from competition and the technology we can incorporate over time.”

Which side do you believe and where are you placing your bet as, in ten years, one of the other will probably be true.  Most bankers I talk to believe they have time to adapt and that they are adapting.  Most technologists I talk to claim that banks are too slow to adapt, their cultures are too traditional and their leadership too weak.

Which do you believe?

I claimed that the size and regulatory structure of banking is too much of a barrier to allow some upstart to take over their core business, but disruptive innovation is “a process by which a product or service takes root initially in simple applications at the bottom of a market and then relentlessly moves up market, eventually displacing established competitors.”

Are we seeing this today?

Finally, I recently asked Where is the Uber of Banking? that sparked a really interesting twitter debate:

@Chris_Skinner it’s cheaper to build the uber of banking than it is to explain it to banks. Why spend the money to explain it?

— Ian Grigg (@iang_fc) March 31, 2015

@iang_fc @Chris_Skinner is financial services, unlike taxis, un-Uber-able? I.e. B/c “Beg forgiveness vs ask permission” lands you in jail…

— Carl Marc Forcestein (@MarcHochstein) March 31, 2015

@Chris_Skinner banks operate as closed processing and distribution networks. If 1 opens up BPaaS/APIs we may see many ‘Uber of banking’

— Kevin Simback (@KSimback) March 31, 2015

Along with comments from many others.

So now it’s back to Chris believing that disruption is where it’s at whether you like it or not, and arguing that banks must act now.  Some are but many are not taking this seriously, and they’re the ones that will be disrupted if they don’t watch out.


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I didn't say that banks are "too big to be disrupted" but "too regulated to be disrupted"

Quite often, with attribution, I let other websites cut and paste this blog onto their own.  American Banker did that recently but changed the title of the blog from  The reports of my bank’s death are greatly exaggerated to Like Airlines and Pharma, Banking’s Too Big to Disrupt*.  In so doing, the intent of the original became slightly distorted and has led to some interesting responses.   For example, JP Nicols responded with Banks better watch out for geeks in the garage and Brett King noted that Pharma is being disrupted as much as banking.

As I stated in the original piece, it stemmed from a debate on twitter between Brett and Michal Panowicz (summarised here by Jim Marous) and, as a result of the slight distortion of my original message, I need to reiterate exactly the point I am making.

First, banking is not being disrupted. 

It is being evolved.  I have made this point before, and stated that the evolution is in the architecture of banking to be a core digital play rather than a physical one.  Like books, music, entertainment, travel agents and more, banking is something that can be done through devices with no physical need for service.  You cannot have that in airlines (you need to physically travel) or gas stations (you need to put gas in your engine physically) but you can have some services, like banking and music and travel orders, made through a pure digital play.

However, unlike music, books and travel agents, banking will not be wiped out by a new player creating a new way of doing things.  There will be no iTunes, Uber, Amazon or Expedia of banking.  The reason for this is that, unlike all those other lines of business, banking is regulated.  Banking is integrated with government policy; is a political instrument; is used as the government’s control mechanism for social order; and is core to a country’s economic success or failure.  For this reason, it is in government’s interest to licence value stores and value exchanges.  This controls monetary supply and economic stability.  For this reason, banks are given the luxury of time to adapt that book stores, travel agents and music shops didn’t have.

Equally, we get a lot of folks saying that a new giant will emerge from the Fintech community to displace banks.  There will be a new JPMorgan or HSBC, which might be an Apple or Kabbage.

I don’t think so. First the P2P community are being given securitised funds from the banking community, so banks win whether they do the lending or the crowdfunders do it for them.  In fact, it cuts costs and displaces risk to the P2P platform, so it’s more efficient in many ways.  A win:win for the banks in other words.

Cryptocurrencies have proven they can’t be trusted – Mt.Gox, Bitstamp, the Bitcoin Foundation – and so the technology is moving from the Wild West of the Web to the Ripples of the banking fraternity.  Again, from chaos comes control, and banks keep their status of being transactors and stores of value.

Mobile will take banking to the masses and the millions of unbanked.  Yes, what’s interesting then is that the unbanked become banked because they build mobile money credit histories that can be trusted.  When M-PESA launched in Kenya in 2007, there were only 2.5 million adults with bank accounts; eight years later, over 15 million Kenyans have bank accounts, thanks to mobile credit histories.  The banks win again.

Meanwhile, as all this so called disruption is happening, the banks can live with the threats and opportunities therein because they know they have time to evolve due to their regulatory requirements.  As Transferwise and Holvi bathe in the misguided belief that the regulator doesn’t care about them, there will come a day when they do.  Come that day, the Transferwise’s and Holvi’s will either be acquired, merged or moved into the banking control ecosystem or shut down.  Full stop.

The only other industry that works this way is probably pharma, where inventing the next big drug product is the focus. That is because the pharma industry works on having patents, just as banks work as an industry based upon licences.

Without patents or licences, what have you got?  A sexy front end distribution system or app that sits like a cherry on a cake.  Very pretty, but changes nothing in the core ingredients of the system.

Nice try y’all.

Meantime, I am not saying that banks will not need to change.  They crucially must adapt to survive.  Their survival being determined by how quickly they can step up to the new model challenge of being digital and not physical.  The ones who work out their digital core architecture, infrastructure and organisational evolution strategy (along their branch closure and staff redeployment strategy) first will be the ones that will lead the rapid change from physical to digital.  The ones who wait will either be beaten by competitive forces or a shadow of their former selves.  Meantime, the ones who create new models through Fintech, will be the ones funded and also acquired by the early digital leaders of the traditional system.  Either way, they all get evolved into the new model army of the digital financial market and, give it ten years, I fundamentally believe the that biggest banks in the world will still be in the list of the biggest and that there will not be one new name in that list, other than an existing bank we haven’t seen arise yet (maybe an African one for example).  It’ll be a bank that create an Uber-style version of their banking offer maybe, but it won’t be an Uber of banking.



* someone mentioned that my original title seemed remarkably English which is why the American Banker switched it to something more snazzy.  For the record, the original title is a play on the American author Mark Twain’s comment: “The report of my death was an exaggeration”


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