There’s lots of friction around these days. Banks that get digital and banks that don’t; fintechs that want to change everything and fintechs that don’t; digital currencies to replace fiat currencies and fiat currencies that are going digital; destruction, disruption and disappointment; and more.
It just shows the world of massive change we are going through right now. As I contend in the new book Digital Human, what we have today is a massive change to everything. It is the fourth revolution of humanity itself. The way in which we live, relate, trade and think is fundamentally shifting to digital connectivity instead of physical connectivity. This is why there is so much friction.
I can summarise this shift in a few bullet points:
- Digital is not business-as-usual cheaper and faster with technology, but a complete rethinking of every business
- Rethinking business starts with customer-centricity and building a digital business model from there
- A digital business model comprises front-office apps connecting to back-office analytics through APIs in a marketplace of many players
- Businesses will be forced to open their operations to this marketplace of players through APIs, and it will also force a conversion of core systems because of this
- Core systems have to change due to the attack of new players, and also due to new technologies from AI for back-office analytics and Distributed Ledger Technology (DLT) for global operations
To me this is quite clear and yet, for many people I engage with, they don’t see it. I guess it’s because I’ve been playing with these themes for so many years. Interestingly, the comment that I hear quite often now from banks is that they are no longer a bank. They are a technology company with a banking license. Some industry commentators pooh-pooh this idea, but it is not far from the truth as, twenty years ago, I predicted that the telecommunications markets would merge, over time, with the banking markets. Today, I think they have. In fact, going to my stepladder to financial inclusion:
- Step 1: Exclusion
- Step 2: Mobile Payments
- Step 3: Mobile Microfinance
- Step 4: Mobile Basic Banking
- Step 5: Mobile Full-Service Banking
Banks are on the top of the ladder and thinking about stepping down. Meanwhile, mobile network operators (MNOs) and internet giants like Alibaba and Amazon are at the bottom of the ladder and stepping up. At some point the two will meet in the middle and create a new bank that is digital based upon the internet of things and driven by the telecommunications network.
We can already see this, with Orange moving from Step 2 in Malawi to Step 3 to Steps 4 and 5, as they opened a bank in France. Meanwhile, Equity Bank in Kenya has stepped the other way and launched a MNO in Kenya to compete with M-PESA as they walk down the ladder.
The thing is that the two extremes of walking up the ladder and down the ladder are cultural clashes and mindsets that do not match or align. Banks want basis points differential on debits and credits; MNOs and internet giants want more time and data on the network and more buyers and sellers on their platforms.
So, what will the new hybrid digital bank that merges MNO mentality with banking culture?
I have no idea, but it will probably emerge from the MNO operators and tech giants, because they are starting from nothing. A bank starts with its full-service offering, products and services already well defined and with an embedded culture. The MNO and internet giant does not.
This means the nearest I get to how the bank of the future looks today is shaped by Alibaba, Amazon, Safaricom, Orange, Telenor and others. But then this misses the biggest thing: I am not looking for the bank of the future. I am looking for the financial system of the future and neither an MNO or bank gets that yet. Ant Financial’s Alipay and Tencent’s WeChat Pay do.
Why not PayPal or an American technology firm? Because the Chinese technology firms are radically different. They started with no major infrastructure in their way, rather than adding to an existing structure as Amazon and eBay did. The regulators also allow integrated financial, commercial and social integration in Alibaba and Tencent which the American regulators do not. Alibaba and Tencent are like integrating PayPal, Amazon and Facebook all in one. They are very different. And their ambitions are different too. If you didn’t read my summary case study about Ant, then please do. The net:net is that these are technology firms who happen to offer finance. They offer everything from Step 2 to 5 in my stepladder above, and they allow any transaction from micro to macro to move across their network. But, first of all, they are a technology firm that happens to do finance. They call it TechFin. TechFin starts with technology and the wonders how to use it to trade exchange value which they claim is different to FinTech, which starts with finance and uses technology to do it faster and cheaper. TechFin is a very different view of the world, and I urge you all to take a closer look.
Postnote: I also happen to believe that any firm starting at Step 2 and working up to Step 5 is a classic case of The Innovator’s Dilemma for banks