Why banks are failing to manage money

OK, down to business. What has the failure of government to regulate the internet got to do with banks?

Quite a lot actually as governments and banks are closely intertwined, as demonstrated throughout this financial crisis.

Banks control economies and governments need economies to run efficiently, hence the two go hand in hand.

And just as governments are conflicted, as they move from old world to new world, so are banks.

And I’m not talking about Bank 2.0 here or anything.

I’m talking about the transition of society from one where everyone was disconnected to one where everyone is connected.

This is my main theme in presentations right now.

We are moving from a planet where everyone was disconnected, because they could only connect face-to-face physically and locally.

Air travel was limited and motivations to travel were less.

So the planet was disconnected, and only local communities connected.

Then, as globalisation has hit, we’ve connected the whole planet through commerce and now through technology.

The result is that 6.3 billion people are suddenly all connected wirelessly.

They can communicate wirelessly.

Not just with voice calls, but with email, text messages, data, images, files, presentations, videos, photographs … you name it.

All through the global network of mobile and internet.

The whole of Planet Earth is connected P2P.

This is a fundamental revolution of our society.

A revolution that takes us from a disconnected planet to a connected one socially, commercially, economically, politically and technologically.

That’s where governments have their conflicts right now and, from a banking context, it is also where banks are challenged.

Banks are seeing new forms of credit and debit systems forming every day from mobile wallets to social lending to social credits to time exchanges to complementary currencies to virtual currencies to …

The list is almost endless and is changing every day.

What this means is that we will see a new world order emerge.

The new world order will be based around the exchange of value in the form of virtual credits and debits, and is seen already in the forms of gaming with Zynga and iTunes.

Over time, it will grow to reflect a global clearing system for virtual credits and debits of value via anything from a monetary based transaction to a time transaction to a gaming transaction.

This global value exchange system differs fundamentally in form and feel from the old world financial value exchange.

In this new world banks will move, as mentioned on this blog before, from managers of money to managers of data.

They probably won’t be banks however.

They will be data managers, information leveragers, knowledge mechanisms and value stores.

This transition from old finance world to new value world will be a painful one for some.

We will see new entrants appear who do this value management brilliantly and some incumbents evolve to compete effectively with them.

However, many old world money managers will die and disappear, slowly but surely.

They just won’t ‘get it’.

As I presented this theme to my Abu Dhabi audience, one of the questions that came up was: “who will regulate these virtual currencies?”

This always comes up, as does compliance.

My answer is that the new system will gradually stabilise like the old system did, and the new system will gradually emulate many of the mechanisms of the old.

After all, as societies evolve their morals and mechanisms do too, and often reflect those of the past but in new ways.

This is best illustrated by my story of Second Life, which I use regularly to point out that the virtual world banks realised, as their banking system collapsed, that they needed to ensure virtual world representations of banks needed to reflect the representations of the real world banks, with real world banking licences.

However, the major shift is that banks will not retain their status in this new world by relying on their old world banking licences.

The new world will need licences, but licenses to manage value rather than money, as money has become meaningless.

As we have shifted from managing money to data to value, we have seen a shift from money managers to data monitors to value exchanges.

That’s the real shift and the new government licencing system will eventually emerge that recognises the value exchange manager rather than the traditional money manager.

Remember, the traditional money manager is the bank.

After all, as governments realise they cannot regulate the internet the way they do today, banks will realise they cannot regulate money the way they do today.

The two go hand-in-hand.