I was reflecting on a question posed to me recently by a Turkish banker. He asked me: “why is it that the Western banks are always talking about legacy?” I knew exactly what he was getting at, as the banks I deal with in USA, UK, France, Germany and other European nations are always fretting over the challenge with their old systems. It is not surprising when 43 percent of their bank systems are built in COBOL and other old programming languages where few people have any knowledge of how to program in these languages anymore. Most COBOL programmers are in their 50’s and soon their numbers will disappear. This is forcing banks to replace systems that have been operating for three decades or more, and that is like ripping out the foundations of a building whilst ensuring the house doesn’t fall down. It is not easy.
For me however, it illustrated a different conundrum. Whilst the United States and Europe are wrestling with legacy systems, I see China, India and other growth economies leap-frogging their counterparts thanks, in part, to implementing systems after Mark Zuckerberg was born. Many of the banks and businesses in these economies began architecting infrastructure in the late 1990s and 2000s, and are now reaping the benefits. For example, China’s use of mobile payment services now outnumbers the volume of cash payments, with $5.5 trillion in payments made through apps last year. Compare that to the measly $112 billion in mobile payments in the USA in 2016, and you can see the difference. Why is there such a radical divide between the two economies? The main reason is that China was not a card-based economy. The issuance of debit and credit cards was limited and, thanks to building infrastructure just in the past decades, the economy has managed to leap-frog the Western world.
Meanwhile, a third trend is occurring, which is the rise of mobile payment and wallet innovations in the developing and emerging economies. These economies are across Sub-Saharan Africa – where Uganda, Ghana, Tanzania, Mali, Kenya, Nigeria in particular come to mind – along with the Philippines, Indonesia and parts of Latin America. In these economies, you have large parts of the population living on less than $1.90 a day, the measure of the official poverty line today. These peoples have largely been ignored by technology but that is changing. Thanks to mobile networks, most of the populations now have a mobile telephone or, if not, access to one if needed. By using mobile telephones, they can not only talk, but trade and transact, with mobile sales anticipated to rise to billions. This is illustrated by recent research from Global Market Insights, who state that inexpensive wireless communication techniques among developing nations has stimulated the mobile point of sale (MPOS) market to surpass $20 billion by 2020, up from the present $12 billion with an expected CAGR of 19 per cent. The thing about this market is that there was nothing there before. It was too expensive for the physical financial network to serve people living on $1.90 a day. The digital network based upon mobile financial exchange, is changing the game here.
In particular, in these latter markets, because there was nothing there before, they are reinventing the whole structure of how we think about financial systems and markets. These markets are creating disruptive innovations based upon mobile networking transactions, that could change the game for all of us.
In conclusion, I see a three-stream world out there. The Western World of legacy economies; the Asian world of growth economies; and the Southern Hemisphere world of innovation economies. When it comes to looking to the future, I know which one I would watch.