I recently presented at the DIFC's first Dubai Fintech Summit on the past, present and future of banking, finance and technology. It was fun, but with only twenty minutes, it was fast. So, here is that presentation and transcript if you are interested ...
Some of you may know me but, if you don’t know me, I write lots of books. 22 books so far and I'm working on number 23 right now, and I blog every single day at www.thefinanser.com about banking, technology, finance, the future and fintech. That’s my space. I’m going to very quickly summarise what I see as the past, present, and future of banking, technology, finance, and fintech. And I’m going to speak quite quickly, as I’ve only got a short amount of time. So keep up.
We’ve just had a recent past that’s been very troubled with the pandemic. For two years I was locked into my room near enough, like many of us, not sure whether I’d get back to a normal life, but we are back to a kind of normal life.
Add to this that I live in Poland, and we have a lot of issues with our Ukrainian neighbours being in a crisis with Russia.
This meant that, for two years, I was locked in my room. It was bad and sad, but I was lucky to spend most of it with my two little boys who were four years old when the pandemic started. The outcome of this is that five of my books are children’s books about Captain Cake and the Candy Crew … to sweetly go where no sweet has gone before. Those were written during the pandemic lockdown.
The reason why I put my boys on screen is that, when you have children, and these are my first and only children, it makes you question everything in what’s going on in the world. It makes you think about things. My boys think I’m Iron Man. I grew my beard for them. I think I’m more like Dr. Strange and Iron Man is obviously much more like Elon Musk. In fact, I’m far more like Bruce Banner to be honest than like Tony Stark.
Nevertheless, all of these things bring question. I got a lot of questions in my head around money, finance, technology. For example, our world does not exist the way we see our world. Our world has no countries. We just made them up.
The internet doesn’t recognise countries, and that’s a huge issue for regulators and for companies and for financial institutions. How do you deal with the world connected through the network of currencies that don’t recognise countries regulations and borders?
Time does not exist. Albert Einstein made this point and it made me sit up and think, wow, that’s true. If you go to China, China has one time zone and for such a big country you would think it would have three or more. If you go from Afghanistan into China, you have to put your clock forward more than three hours, even the country borders are adjacent.
We just made time up and now we talk about real time and doing everything transparently, interconnected globally, immediately on demand that changes the way we should think.
We also have issues with thinking about money because money does not exist. We just made it up.
The UAE dirham doesn’t exist. It’s just invented. The same is true with the Euro and the US dollar. In fact, right now there’s a big debate around dedollarising the world. Does the dollar stay as the reserve currency of the world? What happens if it isn’t? What do we do? How does that change how we bank and how we think?
Asking these questions makes you realise that the whole way in which we grew up is not the way in which our children will grow up. And it’s not the way of the future. We have to think different.
And what does thinking different really mean in finance, technology, banking and fintech? It means looking at where we are today and recognising that the way in which companies exist today, and the way in which the world is moving today, is moving in a very different way.
Let’s take fintech. Fintech, for me, is the partnership of parents and children. Part of the reason why I put my children on the slides is that, as a parent, you know you want stability, security, reliability, resilience to keep the status quo, to keep the world safe. The child wants to kick the walls, paint the windows, jump up and down and break everything, and create a different future.
I see this almost every day because I walk into the boardrooms of banks and fintechs. If I walk into the boardroom of a bank, I generally see a lot of old men. Whereas, if I walk into the boardroom of a fintech, I see young people changing the world with a different vision, a different idea. That’s why I’ve thoroughly enjoyed the rise of fintech, because we’ve seen billions of dollars invested in thousands of companies that are changing the world with a new vision, with vitality and youth.
The fintech industry has grown from almost nothing in 2010 to 38% of the value of the financial markets players by 2021. From 3% to 38% by value, every single aspect of the market has been taken apart by these new visionary technology players. And they are all focused on doing one thing brilliantly. Unlike banks, they’re not trying to do everything.
For example, Stripe, when they launched, just launched a payment checkout mechanism with seven lines of code. That was in 2011. By 2016 they were worth almost $10 billion. By 2018, they’ve doubled in value. By 2019, they’d almost doubled in value again and, by 2021, they’ve tripled in value.
In a decade they’ve moved from nothing, with seven lines of codes, to become one of the major global payments players with just a few thousand people. When you compare that with traditional financial institutions, like Commerzbank, Stripe is worth nine Commerzbanks with a tenth of the people; they are worth over three Deutsche Banks with a fifth of the people. What’s going on here is basically the traditional financial markets are structured around physicality and distribution through buildings with humans, into new markets of digital finance built upon software and servers.
The new world of digital is driven by data, not by buildings with humans.
This is a stark reality that is highlighted so well by Stripe. Having said that, Stripe has stumbled a bit in the recent times, like a lot of fintech. Their valuation went down to USD$63 billion in January 2023, and down to $50 billion by March, because what we’re seeing is the fintech bloodbath. We’re seeing so many companies losing value, so many having to lay off staff and so many imploding. The reason being funding has dried up.
Klarna has lost about 85% of its value in the last year; Revolut lost 60% and, as I just showed you, Stripe has lost a half. But this is not an implosion. It will continue, and fintech will still thrive. A little bit like saying the internet was dead in the year 2000, after the internet boom and bust. It wasn’t dead, it got stronger. There was a headline front page on Time Magazine back then that said Amazon’s future looks like it’s dead. Well I think Amazon did pretty well in the last 20 years. So, the surviving fintechs will grow stronger. But we are seeing a bloodbath right now. Nevertheless, there’s still investment going into fintech and there’s still unicorns being created.
The main issue is that, if you’re a young startup, it’s been tough for the past year, and it will stay tough for the next year.
Then we come to cryptocurrencies and, right now, this is a theme that I’m focused upon, specifically cryptocurrencies versus Central Bank Digital Currencies, or CBDCs as we call them. Can we decentralise finance or does it need to be centralized? Or maybe it can be both, if there is something in the middle? In my view, there needs to be to be something in the middle, which I call HyFi. HyFi is Hybrid Finance. HyFi is centralised for transactions and centralised for governance.
The thing is that we don’t actually transact with crypto. I mean we can, but has anyone tried to buy anything with bitcoin or a cryptocurrency? I have, but it wasn’t that easy.
It’s quite a lot of malarkey, as they just said, but I just like the advert cause the idea is saying it’s crypto only. You know, people don’t transact that way … but they might tomorrow, and there’s lots of things developing that are going to encourage that.
Nevertheless, let’s get back to today. Today, there is a fintech bloodbath and crypto winter. It’s hard times. The value of most cryptocurrencies have gone down dramatically in the last year, 18 months. bitcoin is stumbling around the $30,000 level, whereas it was much higher a year ago. The same with Ethereum, Polygon, Cardano and others.
What’s interesting is the number of companies that went bankrupt during this period.
In fact, the crypto winter was created by the likes of Sam Bankman-Fried with FTX and the implosion of Terra Luna, which was meant to be a stablecoin. And yet we have seen this many times in the past, such as Canada’s best crypto-exchange Quadriga, where the founder was the only person who had the password and he died. The result was that the exchange imploded. Ten years ago, there’s MountGox. Another exchange that imploded.
Funnily enough, with all these things, what tends to happen, going back to this idea of decentralising and centralising and hybrid finance, is that when the implosions happen and money is lost, people ask, who can I call? How do I get my money back? And this has been the big issue for many of the people who’ve invested in cryptocurrencies or in fintechs to a large extent to say: how do I get my money back if I’ve lost? Who’s regulating this stuff?
Bob Diamond, the former chief executive of Barclay’s Bank recently came out and said: “I can’t think of anyone who believes that in the future a digital version of the dollar for corporates and institutions isn’t going to happen. We are definitely going to digitalise money”. The question is: is it a digital dollar or a a digital renminbi or a digital Euro or a digital bitcoin or a digital ethereum?
It’s your choice.
We are going to see a big change in money and it’s gonna be encouraged even more by the metaverse. I was excited by the metaverse and then I’ve got less excited because it doesn’t have legs. Mark Zuckerberg has realised it doesn’t have legs and, having spent USD$24 billion in two years on building Meta, Martin Zuckerberg came out the other day and said: “I’m dropping this because we are going to invest in artificial intelligence. It’s far more important”.
That seems like a lot of money to have spent on building a metaverse. And yet, putting it in context, he stated, that’s 10% of our budget for R&D investments. It just shows how much money Facebook has.
So, the Metaverse is going through a big change. Whatever you believe however is that one day there will be a Metaverse. I don’t know what it will look like, but it will probably look like the Holodeck on Star Trek.
The next generation, where you open some doors and walk into another world. A world where you physically feel that you’ve been transported into another universe. A lot of people have invested in trying to do things around the metaverse, but then I always come back to my experience of another world of virtual life years ago. A world called Second Life. The idea being that, if you don’t like your real life, get another life.
And that experience was that.
Yes, I played in Second Life. I enjoyed the experience. I did quite a lot of engagement and talking with people in another world, living a virtual life. And I got very interested myself because there was real money that was being made in Second Life, buying virtual properties and selling it on the main streets.
But the thing that really intrigued me was the biggest bank in Second Life that was Ginko Bank.
Ginko Bank allowed people to put real US dollars into a virtual bank. That was great but then, one day, Ginko Bank just disappeared. It turned out, upon investigation, that Ginko Bank was run by a San Paulo student in Brazil who, having taken USD$1.5 million of real US money, just pressed delete and bought himself an apartment and a Ferrari and, for three months the people in Second Life demonstrated outside the headquarters of the Second Life operator, Linden Labs, and said: give us our money back.
The reply from Linden Labs was that: it’s not our job to regulate this. We’re just a platform. But then they eventually said, after three months of demonstrations, okay, if you want to be a bank in a virtual world, you must be a bank in the real world.
And the point I’m making here, whether it’s cryptocurrencies or fintech or the metaverse or anything, is that you need governance to make finance work successfully. The question then is: what governance do you need? Could it be the governance of the network of citizens on earth through the internet? Or does it have to be a central bank or a central government authority?
This is where a lot of technologists and libertarians and fintech people get it wrong. Even Bill Gates got it wrong. Bill Gates said, back in the 1990s, that we need banking, but we don’t need banks. Complete rubbish.
Sure, we need to make payments, and we don’t need banks to make payments. We need to save and invest, and we don’t necessarily need banks to save and invest. We need to borrow and get credit, and we don’t necessarily need to go to banks to get credit. But the core thing that banks do is that they are licensed and governed and provide a guarantee of trust that you will not lose your money. Nothing else does that. Which is why I think banks will be around for the next century or more, maybe even the next millennial or more, which depends on whether in the future we actually have money, which is a debate around Star Trek.
If you store money, you need something that’s trusted. If you’re just transacting, it doesn’t really matter. Decentralised finance for transacting is therefore fine, but storing my savings and investments on a platform that’s decentralized, if there’s no guarantee or license or backing? That is more questionable.
Finally, when we look to the future, we see a very different world full of robotics and artificial intelligence. Will we actually need to have jobs? Will humans be employed? The whole thing about artificial intelligence is becoming very scary but also very exciting. It’s both. There’s a huge opportunity but, at the same time, maybe we could replace everyone with ChatGPT?
Elon Musk is saying that everything around AI is going to be where they’re focusing investments and actually has now X.AI to rival OpenAI. Google is doing the same and, as mentioned, Facebook’s given up the Metaverse to focus on AI.
It is obvious that this is a thing.
This is the thing to focus upon and try and work out what it means for ourselves. People think it might be very scary. Geoffrey Hinton, the former head of AI at Google and the creator of a lot of ideas around deep learning and artificial intelligence, said that: it’s almost like we’ve got aliens landing and we haven’t realized that they’ve landed because they speak very good English.
Where is all this going?
AI, the metaverse, cryptocurrencies, fintech, banking?
It’s going to a world where obviously everybody will work with machines. This is why teachers should teach my children to learn the things that machines cannot learn. Children should be taught things around emotions and relationships and empathy.
When I look at the other areas around, yes, they’re all very exciting, but everything is changing dramatically and rapidly. Our job is just to try and keep up with it all and, in particular, try and use what we do to make the world a better place.
For example, there’s a big rebellion going on around the banks that are investing in fossil fuel firms.
HSBC came out the other day, and said that they won’t invest in new fossil fuel projects. Whether that’s true or not, we’ll find out.
What is interesting is that there are so many companies, particularly in the fintech space, saying: how can we use technology and finance to make the world a better place?
How can we do good for society and good for the planet?
That’s a really interesting theme to finish on, because that’s positive. That’s saying how can we use AI, the metaverse, cryptocurrencies, fintech, technology and finance to do good for our children and make the future a better place for them?
So, I guess my final point is that we need to focus upon how can we harness the power of technology to make the world a better place for the next generations.
Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, TheFinanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal's Financial News. To learn more click here...