I’ve talked often and in depth about the internet of things and how this affects banking. In the near future, when each of us has five, six, eight, ten things on the internet, we will be seeing a world where trillions of transactions take place amongst billions of things in real-time, not-stop and in very small amounts. My fridge might be ordering milk, my TV the next episode of Game of Thrones and my car a top up of unleaded, all in immediate space and with immediate finality.
That is the challenge for the banking system. Morphing from a system that takes minutes, days or weeks to one that can process a billion dollar transaction for the same cost and in the same time as a nano-cent. Huge challenge.
The book ValueWeb explores that in depth. The book is all about building an internet of value that can support trillions of transactions in real-time for low cost and immediate payment. That is what we need for the internet of things.
However, I don’t explore some other areas in the book that are worthy of exploration. For example, if all cars drive themselves and never crash, who needs car insurance? If every house is online and therefore cannot be burgled without alerting the authorities, who needs house insurance? If you never need to pay for anything as it’s all wireless, who needs cash?
Again, it raises lots of fundamental questions about financial services business models. We build our business on physicality. As we move to digital, we have no idea what to do. We built our model on annual premiums because it was too hard to do insurance-as-we-live. Now, insurance-as-we-live is the new model. Banking-as-a-service is the way to go. We need to open source and structure our services for how our customers live, breathe and work.
I find this the most puzzling piece, and it’s probably because customers haven’t got it yet. Today, I live in a world where nothing is an annual commitment. I download as I feel and pay by the month. If I don’t like it, I cancel it. In some cases, I download as I go. I only pay if I listen or use. And yet the model of banks and insurance firms is one of long-term commitments. Banking is for life and insurance firms know that when you sign up for your pension, you’re there for forty or more years. Woah. This must change.
Why would I ever make a lifetime commitment today?
Some of us marry, but know we will not be there forever. Some of us adopt a dog or a cat, but know that we won’t necessarily be there forever. Some of us sign up for things – a house, a bank account or an insurance policy – but know that we will switch as soon as there is a better rate.
There are no lifetime commitments anymore.
Twenty years ago, we might have applied and been assigned a job for life. There is no job for life anymore. In fact, I’d go as far to say that any job for life today sounds more like a sentence than an opportunity. Who wants to be grounded forever?
The new world is one of transient relationships, shorter-term commitments and everything online all-the-time. But the financial system is built for lifetime relationships, long-term engagement and everything over-the-counter. This is the core challenge and this is why the globally connected internet of things creates a massive challenge for the incumbents.
Incumbents must be agile, nimble and digital but they were built for being slow, risk averse and physical. Suddenly customers are saying they have the things they value all around them, and all of those things are on the internet. Can we keep up? Will we keep up?
Certainly, it creates challenge as well as opportunity. I heard a great story, for example, of one insurance company who now insure things based upon the security of your house being connected. The insurer monitors your house 24*7. They know if you left a window or door open as you leave the house, and will even alert you to the fact.
This is the new world. All is online. All is real-time. All is connected. And anyone who believes in a system that refreshes annually is delusional.