FinTech Ecosystem Insights by Bussmann Advisory is our weekly newsletter, summarizing relevant news and reports related to ecosystems around disruptive technologies, highlighting key updates from the industry as well as our portfolio companies:
The latest edition of the FinTech Ecosystem Newsletter is here:
FinTech Ecosystem Insights by Bussmann Advisory is our weekly newsletter, summarizing relevant news and reports related to ecosystems around disruptive technologies, highlighting key updates from the industry as well as our portfolio companies:
The latest edition of the FinTech Ecosystem Newsletter is here:
By Falk Rieker and Oliver Bussmann
In a previous post we pointed out that corporate banks were in danger of falling behind the technology curve. We also said that banks needed to respond through full-scale digitalization.
In this post we’d like to take a deeper look at the principles we think should guide this transformation.
We strongly believe the future will be one of platforms and ecosystems in which large networks of providers contribute to the collective value chain. Banks, however, have traditionally taken the opposite approach, serving most if not all of their value chain themselves.
This will not be sustainable in the coming world of regulatory mandated open banking, nor in a technology environment where banks but also third-party providers and clients can already easily consume financial services on broad-based platforms (think SAP Cloud, AWS, Google Cloud or Microsoft Azure).
We’ve seen other industries, like manufacturing, successfully implement multi-provider value chains. We think banks must focus on putting the infrastructure in place to build such value chains in financial services too – for example, by taking advantage of the burgeoning third-party Fintech offering.
In doing so, they must be careful to position themselves as platform owners. This is very important. Today banks own the customer relationship. If they don’t take the initiative to secure their place as the central players in the new ecosystems, they run the risk of losing that ownership, which would be disastrous.
One way we think banks can keep customers close is by extending their offering.
This can be within financial services, for example by providing insurance, accounting and tax services, or data analytics. Or, it can be by moving beyond financial services: banks offering supply chain finance, for example, could collaborate with partners to offer warehousing and logistics support too.
In this way banks can become a one-stop shop for corporate clients in the same way platforms like Amazon have become for consumers. This may sound farfetched. But with today’s technology, it is hardly impossible. We see no reason why banks shouldn’t explore broadening their business model beyond traditional banking.
The good news is, when it comes to building such ecosystems, incumbent banks have a significant advantage: their reams of customer data. To capitalize they will need to up their game when it comes to exploiting it for useful insight.
We have often asked ourselves why it is that in the enterprise world we can’t ask a question and get an immediate answer the same way we do every day in our private lives with Google?
The secret is being proactive – and predictive. Companies like Facebook and Google don’t just have data on their customers; they have real-time intelligence on what they are asking about. This lets them provide answers more quickly and precisely, and keeps them on the pulse of user needs. Banks must develop the capabilities to do the same.
All of this calls for relentless innovation. Banks must digitalize, build the open infrastructures we have alluded to above, and master the new technologies like blockchain, machine learning, and artificial intelligence that will allow them to put the pieces together into a meaningful whole.
The need is all the more urgent considering that many other industries have already completed this process.
As a result, not only will corporate customers increasingly ask for the type of real-time, on-demand banking services that retail customers receive – they will also have the systems in place to consume them. Those banks that can meet this demand, for example by integrating their offerings directly into their customers’ ERP systems, will have a distinct advantage.
Last but not least, banks must be able to adjust to new business models as market dynamics change.
Take the sharing economy. In the past, people bought their own cars, motorbikes or boats. In the future, people will prefer not to own but to pay per use. We will see similar developments in the enterprise.
Banks as service providers could do well in such a world, but they will need things like advanced analytics to predict usage patterns and so be ready with the right products at the right time.
By mastering platform and ecosystem thinking, we think banks will be able to maintain their positions and even grow their businesses.
For its part, SAP has already reacted to these realities – building both an infrastructure layer (the SAP Cloud Platform) and a digital innovation system, (SAP Leonardo), both of which provide the foundations upon which to grow ecosystems.
We are convinced that the future belongs to platforms and network-based ecosystems. If they can seize the day, corporate banks have an opportunity to play a leading role in them.
If you are interested in learning more about the future of corporate banking, please join the discuss and meet Oliver Bussmann and Falk Rieker at the Sibos in Toronto on October 16th.
Bussmann Advisory helps C-suite executives, entrepreneurs and decision makers stay ahead of the digital disruption curve. With a client base covering top-tier banks, leading blockchain startups, global consultancies and other firms facing disruption, as well as strong connections in the global FinTech community, the Bussmann Advisory team is close to the pulse of the rapid changes facing industry. It provides thought leadership and advisory services above all in digital transformation, innovation orchestration, and business model re-creation.
By Falk Rieker and Oliver Bussmann
A great wave of change has been breaking over the financial services industry for some time now. When it finally recedes, we can expect a fundamentally transformed market infrastructure to be left behind in its wake.
Driven by unprecedented speed and adoption of new technologies and business models, and accelerated by game-changing regulatory directives like PSD2 and GDPR, this new world of banking will be one of open architectures and broad, integrated ecosystems.
Banks need to act now to be ready for these changes, or risk being caught in the swell. Unfortunately, while some areas of banking are adjusting, others have not been keeping pace with the new currents of digital transformation.
This is certainly the case with corporate banking.
Many corporate banks are saddled with outdated legacy technology that is expensive to maintain, limiting what they can offer. Services tend to be splintered across multiple channels, making for a disjointed customer experience. Wildly different technologies and formats stand in the way of convenience and interoperability.
Under these conditions, it is understandable if corporate banking clients feel underserved, especially compared with what is available in other industries – or even in retail banking.
This is bad for the clients. It is also dangerous for the banks.
We see two main areas of concern.
To avoid this fate, we strongly believe corporate banks must pursue full-scale digital transformation.
Among other things, we believe they should:
This brave new world will open any number of possibilities for those banks that can adapt.
In a world of trillions of nanosecond micropayments and smart contracts, we think banks will increasingly be seen as trusted providers and fraud risk managers, for instance. This could generate new service opportunities and revenue streams, particularly for banks that have developed industry-specific capabilities.
We think digitalization will also allow banks to move from a one-to-one model based on traditional products to a one-to-many approach featuring new digital products and services. That’s good for clients but also banks – as many of these new digital services can be offered at scale while still being easily customized.
There are a host of other possibilities we might name.
While corporate banks may have been hiding their heads in the sand up to now, we think they can no longer avoid the wave of digital disruption.
Those that dive into the water now should be able to ride this wave to new heights. Those that don’t may very well sink.
Attending the Sibos conference in Toronto? Join Falk and Oliver for a discussion on the Next Generation of Corporate Banking on Monday, October 16 @11:30 AM
Bussmann Advisory helps C-suite executives and decision makers in global enterprises stay ahead of the digital disruption curve. With a client base covering top-tier banks, global consultancies and other firms facing disruption, as well as strong connections in the global Fintech community, the Bussmann Advisory team is close to the pulse of the rapid changes facing industry. It provides thought leadership and advisory services above all in digital transformation, innovation orchestration, and business model re-creation.
By Oliver Bussmann and Florian Herzog
When the blockchain first arrived on the scene, people concentrated on its potential to disrupt the financial services industry. This included banks and other financial services players, who for several years now have been intensely studying and pondering the implications of this new technology for their businesses.
Over this time, we have seen similar levels of interest in many other industries too, from global trade to healthcare.
One notable exception to this rule has however been the life insurance industry, where we have seen very little movement to date. Unlike others, life insurance does not appear to believe its business models are ripe for disruption by distributed ledger and smart contract technology.
We think this is a mistake. Here is why.
A dangerous complacency
The life insurance industry has traditionally depended on large, complex, closed distribution networks.
In Europe, for example, distribution is often handled through exclusive arrangements with banks, often called bancassurance. In other parts of the world distribution is typically carried out via brokers, agents or other distribution partners, also generally on an exclusive basis.
This exclusivity is not just rooted in contractual arrangements, but is strongly reinforced by the generally outmoded technology and processes involved.
Today’s insurance industry relies to a great extent on 1970s-era IT architectures, where data lives in large, proprietary, static databases and is pulled, processed, and returned by separate, equally complex legacy applications.
Such systems are highly costly to build, maintain and connect to. Many of the business processes that support these systems remain heavily paper-based, requiring a lot of trained staff. That makes them expensive and inefficient too, but also difficult for others to emulate.
The result is in effect large, impenetrable distribution silos. Thanks to the sometimes astronomically high cost of connectivity, it is not easy for brokers to change networks or extend their offering. Because data is not easy to share, it is difficult for brokers or end customers to compare prices or conditions.
As long as they remain under their control, such silos can of course be advantageous to the life insurers. Unfortunately for incumbents, their great walled towers are set to fall.
The frictionless future
Thanks to blockchain and smart contract technology, we will be able to replace the old silos with large-scale, open, non-exclusive life insurance distribution networks that will offer great benefits in terms of cost, connectivity and transparency.
With the blockchain, for instance, we can design and implement frictionless digital processes that are more efficient and far less costly than the expensive, cumbersome processes in use by the industry today. This will significantly lower the barrier to entry for new players.
As blockchain platforms are highly interoperable, almost anyone can easily connect to them. This will bring the current high cost of onboarding onto distribution networks down to near zero. The result will be increased competition as new waves of digital brokers, broker platforms as well insurance providers come online.
Blockchain-based platforms also make it easy to share data, which will increase transparency by orders of magnitude. Large insurers will find themselves competing on price and service for the first time, something they are not used to.
When you add smart contract technology on top of the blockchain, then the possibilities – and the threats for incumbents – are greatly increased. That’s because smart contracts allow us to put business logic directly on chain.
Today all business logic with regards to insurance policies, including their administration, is part of the IT application layer. In the blockchain future, the business logic becomes part of the smart contract and hence part of the chain.
This introduces radical automation into the picture, as everything from signing policies to checking if payments have been made to handling lifecycle events to paying claims is automatically executed by the contract.
This will not only make it easier for ever more providers to offer ever more products. It will also allow them to introduce new and highly innovative solutions with relative ease.
Getting even smarter
We believe incumbents should not underestimate the innovation potential inherent in smart contracts.
At Deon Digital – where Oliver serves as Chairman of the Advisory Board and Florian as Chief Technology Officer and Founder – we are building a smart contract modelling language that is blockchain technology agnostic.
This language will make it very easy for business analysts and process designers to model business processes in a high-level way, and then convert those models directly to contract code. By choosing such a distributed ledger-agnostic language, insurance product development becomes dramatically simplified, resulting in faster, cheaper and more agile product innovation.
This is just one example of the kinds of innovation that will make it easier for new companies with new ideas to design and execute new products. That will reduce barriers to entry and increase competition even more.
For these reasons, we think the apparent complacency of the life insurance industry with regards to these new technologies is misguided.
From the point of view of the blockchain, life insurance seems ripe for the picking.
By Antony Jenkins and Oliver Bussmann
This blog post includes the position paper on banking models.
It’s hardly a secret that the winds of change have been howling through the financial services industry. From post-crisis regulation to the Fintech revolution to the emergence of disruptive technologies like blockchain, there is probably no subject more hotly debated in the industry than its future.
It’s good that banks are taking these changes – and their attendant threats – seriously. They are researching, considering, and examining what to do. Yet while we see a focus on innovation, there seems to be a marked reluctance from some bank executives to recognise the degree of transformation required.
To some extent, this is understandable. There is an unfathomable amount of change happening at the moment, especially on the technology front, making it difficult to keep up. The degree of change that is being talked about – not just adjustments but profound rethinkings – can seem daunting too, making it hard to know how to react.
The prospect of the consequences can be intimidating. Banks are complex, often mature institutions that have already made significant investments in expensive technologies and processes. It can be difficult to accept the thought of abandoning them, as well as certain businesses, for the unknown.
We can sympathise. Both Antony, as the former CEO of Barclays, and Oliver, as the former Group CIO of UBS, know very well what it means to be on the inside of a global bank facing the gale force winds of transformation.
Having both now left these institutions for the front lines of this new, emerging world – Antony as CEO of 10x Future Technologies and Oliver as Founder and Managing Partner of Bussmann Advisory – we think we have a good perspective on what is in store.
That is why we are concerned that our old banking colleagues may not have the right sense of urgency.
Let us make no mistake: for banks the time for research and deliberation is over. As the financial services sector grapples with its Uber moment, so banks may soon face their Kodak moment – a rapid diminution in the relevance of banks to their customers as technology provides the means for others to offer a radically superior experience. The time to act is now.
In this short paper, we try to explain why. We summarise the situation facing banks today, examine its causes, and suggest what we think needs to be done – bringing the perspectives we have gained with our experiences on both sides.
New banking models
We are convinced that the banking business model will be greatly disrupted over the next five to ten years as the result of a complete re-architecting of the underlying market infrastructure. We are already seeing the end of the first stage of this process, in which apps and contactless technology have led to enormous changes in how we use bank branches and cash. This is nothing, however, compared to what is coming. We believe we will soon see a new, unprecedented wave of change influenced by a number of factors, including:
Open for new partners
The opening of the financial services industry will present a completely new world for banks.
For one, this will mean getting used to different kinds of partnerships. Banks have traditionally been closed shops, designing, building and maintaining their systems themselves. While this worked in the past, it does not work in an age of highly complex, interconnected and rapidly changing technology.
In place of the standalone approaches of the past, banks will need to function as parts of larger ecosystems, joining networks of partnerships with FinTechs and other providers in various areas of their business. While challenging on the one hand, these partnerships can also help banks assemble best-in-class capabilities to create innovation and transformation at the speed and scale they will need, helping them stay competitive.
These open ecosystems will also create a new world for consumers. We will see this perhaps most dramatically with customer data, which will increasingly come under the control of customers themselves. With more say over how their data is used and which institutions they share it with, customer relationships will be far less sticky than they are today. The new freedoms customers enjoy with their data will enable them to seek more personalised advice and services from a wider set of providers. It could even conceivably be a source of income: in a world where personal data is a valuable commodity, customers may be able to request payment for its use.
Storm clouds of the 21st century
As financial services are disrupted, there will be no shortage of issues to overcome. Consider, for instance, the changes being wrought by PSD2. Here banks will face significant hurdles in areas like cybersecurity, enabling the integration and then onboarding of third parties, testing, and training. We can expect similar challenges in other areas of the banking business as the market transforms.
While this may seem like a lot of storm clouds on the horizon, banks should focus on the many silver linings. To return to the PSD2 example, banks that focus simply on doing what is necessary from a compliance perspective risk missing new opportunities. Those that take a broader view have a real chance to build a better customer experience, and with it new opportunities for revenues.
Banks should also be careful not to let the gathering storm clouds obscure their vision. Looking inward, they must be wary of an excessively risk-averse culture, which can lead them to move too cautiously. Looking outward, banks will want to be sure they don’t overlook where the real competition is coming from, and get blindsided.
To get an idea of the form such competition might take, consider what happens on our smartphones. Based on our behaviour, location and other factors, platforms like Google are already able to predict the next apps or services we may want to use, or information we may want to have. In the future, these platforms will be able to look at our financial preferences, consolidating our account balances, spending patterns and other information to provide us with highly personalised recommendations to help us manage our money and work towards achieving our life goals.
In other words, the financial advisor of the future doesn’t have to be a bank. It can be a machine, and not necessarily one that’s owned by a financial institution.
Facing new realities
So what do today’s banks need to be thinking about in the face of these new realities?
For one, banks will need to innovate beyond banking to reimagine the customer experience. That will mean taking a radical approach to reinvention. The current incremental approach to change and innovation will not be enough to survive in the future, let alone thrive. Nothing short of transformation is required. For this level of transformation to work, banks need to think beyond solving today’s problems. Instead, they must anticipate the needs and problems of tomorrow and actively help to shape a future that meets them.
In the real-time, connected world that will be enabled by such technologies as the Internet of Things and smart contracts, financial services will be increasingly embedded in the value chains of other industries. Banks need to understand what that means for them. They will also need a better understanding of the data in their possession, as data will be the oxygen that will feed the transformation and reinvention of financial services. The good news is that banks already have a wealth of data about their customer’s needs, preferences and behaviours. The bad news is that it resides in fragmented, closed and ageing systems, which prohibits them from aggregating and optimising it to offer better banking experiences. Those banks that can bridge their internal data silos will have a significant competitive advantage.
In the future banking marketplace, trust will become a key differentiator. We believe the definition of trust itself will change due to profound shifts brought about by the disintermediation of financial services and the adoption of distributed ledger technologies. If, as we maintain, customers will in future own and manage their own accounts and data, then the old question of whom I can trust with my money will be replaced by the new question of whom I can trust with my data. Those banks that can win trust will win business – though they should keep in mind that, once trust is given, customers will expect significant value in return.
That means banks will need to lead with the right values, particularly in the sometimes fraught worlds of digital data, privacy and cybersecurity. In these areas, customers will settle for nothing less than the highest standards.
Banking’s big moment
So what should banks be doing?
For one, banks will have to accelerate their innovation efforts while at the same time considering how to create transformation. That means breaking out of a ‘reactionary’ approach and mindset, breaking free from the burden of legacy infrastructures, and pursuing continuous instead of incremental innovation – among other things by learning from the dynamic, rapid culture of today’s new digital companies.
Doing so will most likely mean partnering with startups, FinTechs and other e-commerce players to accelerate change, grow new revenue opportunities and so achieve competitive advantage. This means adopting a Business Development 2.0 approach and embracing the FinTech ecosystem with an end-to-end orchestration – from setting the agenda to ideation to proof-of-concepts to go-live. 10x Future Technologies is a platform designed to enable such transformation, and can serve as an example. In a sector plagued by legacy technology, which prevents incumbents from reacting nimbly to technological threats, we believe the best platforms can only be designed from the bottom up, with the bank’s precise requirements and future-proof adaptability baked in from the outset. In doing so, banks can build significantly improved customer experiences at dramatically lower operating costs and with full transparency for bank management.
Last, but certainly not least, banks should be aware of the new perspectives all this change will bring. We think it is perfectly possible for banks to seize the opportunity presented by the Uber moment they are experiencing today, while avoiding the massive destruction of shareholder value that would result from a series of Kodak moments.
While it will require leadership and courage to provide the requisite focus on transformation, we believe there has never been a more exciting moment in banking, for those prepared to be bold.
Antony Jenkins is CEO of 10x Future Technologies and the former Group CEO of Barclays
Oliver Bussmann is Founder and Managing Partner of Bussmann Advisory and ex-Group CIO of UBS and SAP
About 10x and Bussmann Advisory
10x Future Technologies reflects today’s changes in infrastructure and business models by providing a holistic solution for banks to address their current challenges. 10x’s future-proof core banking platform will empower banks and non-banks to optimise their customer data and interactions in order to offer new innovative and compelling customer experiences in a secure and trusted way. This will put power back into the hands of the consumer and society and generate new revenue opportunities and models for banks.
Bussmann Advisory helps C-suite executives and decision makers in global enterprises stay ahead of the digital disruption curve. With a client base covering top-tier banks, global consultancies and other firms facing disruption, as well as strong connections in the global Fintech community, the Bussmann Advisory team is close to the pulse of the rapid changes facing industry. It provides thought leadership and advisory services above all in digital transformation, innovation orchestration, and business model re-creation.
In a previous post I wrote about my belief that the world was ultimately moving to large-scale, public, decentralized technology models, and these would give rise to global, public, decentralized platforms for enterprises.
The impetus for that post was the announcement of the Enterprise Ethereum project, and my focus was on blockchain and the debate around permissionless or permissioned ledgers.
Blockchain, however, is only part of the picture. Today we are seeing a grand convergence of several technology mega trends that, working together, will make these future platforms extremely smart, fully autonomous, hyper-connected, fully decentralized, and very broad-based.
While it is the technologists who are building these platforms, it will fall to business decision makers to figure out how best to use them commercially. Certain industries are racing ahead in thinking about the radically new business models this future will bring. Others – including financial services – seem to me to be lagging.
I think that’s a mistake, as I intend to discuss in a later post. Here I would like to look at this convergence in some detail, as I think enterprises really need to understand the new environment they will eventually being doing business in.
Today, as people have recognized when for example talking about the fourth industrial revolution, we have at our disposal the various technological ingredients needed for radical automation and radical decentralization.
Most prominent among these, at least in a commercial context, are artificial intelligence (including, but not limited to, machine learning), big data, the Internet of Things (IoT), and edge computing.
Advances in each of these fields represent extremely interesting new technological capabilities in themselves. But to be truly useful for platform building, they need to work in tandem. That’s because they have a number of dependencies.
For example, thanks to artificial intelligence we can teach computers to think for themselves and make autonomous decisions orders of magnitude faster and, at some point, orders of magnitude better than we can.
But thinking machines first need to be educated – either by being fed a steady stream of information so they can learn on their own, or by being given robust enough models of the world to allow them to make intelligent choices without our help. The prerequisite for this is having enough information around in digital form with which to train our machines. This was impossible before big data.
Once our machines can “think”, we will want to “do”. To drive true large-scale automation, our AI decision makers will need to manipulate real-world devices outside of themselves. But this only works on devices that can receive messages, understand what they are being asked to do, and autonomously carry out their instructions. This was not possible before the IoT. And, as we are learning, for IoT-enabled devices to be able to react quickly, and so be useful in a decentralized world, they will not be able to wait for data and instruction from the cloud. Hence the current interest in developing edge computing, in which data and computation takes place on the devices themselves (the “edge” of the network) and not in central nodes. This prediction was described by Peter Levine, a partner at Andreessen Horowitz in his talk “Return to the Edge and The End of Cloud Computing”. In following video, Peter discusses the pressures that our pushing toward edge computing and away from the cloud:
Last but not least, no decentralized platform can be built if the nodes on the network, whether machine or human, can’t easily, securely, autonomously, transparently, traceably and quickly share data. Where can we look for a technology to allow them to do this? To the blockchain or other distributed ledgers, of course. For this reason, I think blockchain will play a key role in the coming convergence, as the communications, trust and auditing hub. But it is only a part of the picture.
There is no doubt that the radical decentralization and automation this will enable will have a radical effect on business models too. The new environment will just be too different for business as usual.
I expect that, thanks to far greater integration of value chains or between businesses and customers, business verticals will blur. The silos between industries will also come down.
Enterprise decision-makers will need to keep this in mind. In subsequent posts I will lay out in more detail how I think these new models will look, and how in my experience some industries seem to be doing a better job than others in preparing for the decentralized future.
There is no doubt that Brexit was a shock to large parts of the UK business community. This is certainly the case in the financial technology, or FinTech, sector.
FinTech is a catch-all term used to describe the exploding number of technology companies – both startups and established firms – building products and services to improve and transform financial services. It has become a significant industry, attracting over 25 billion US dollars in investment globally in 2016. Since FinTech arrived on the scene the UK has been one of this nascent industry’s clear leaders.
After the referendum this position is no longer secure, and UK FinTechs are concerned. As someone who, through his work, has come to know the UK FinTech scene quite well, I can understand.
Here are what UK FinTechs are particularly worried about when considering their post-Brexit future:
Talent. By far the most pressing concern for UK FinTechs is the future of their workforce. Both finance and tech are highly globalized, internationally oriented industries, dependent on an international talent pool. In a report last fall Innovate Finance, the non-profit organization that represents UK FinTechs, noted that the founders of almost a third of its members were non-British. (It also noted that over 40% of workers in Silicon Valley are foreign born, underscoring just how global tech talent really is.) Anything that restricts access to skilled people will hurt UK FinTechs.
Access. Brexit represents a break with the UK’s largest trading partner – a significant market of over 500 million people. As part of the EU, UK FinTechs requiring a financial license enjoyed easy access to this market through a process known as passporting, by which a UK-based license is generally enough to do business in other EU countries. The UK government has said it will ensure full access to the EU post Brexit, but the Europeans have been more reticent on the subject. Any loss or increased difficulty of access will be a blow.
Investment. While global investment in FinTech has been rising, it has slowed down in the UK lately, mostly due to Brexit-fueled uncertainty. It’s too early to say if this a long-term trend. Yet there is no doubt that if confidence in UK FinTech is eroded, that would make it less attractive for foreign investors. An exit from the EU also likely means the loss of EU-based seed funding for VCs and startups, which has been a useful source of support for innovation in the past.
What can the UK and its FinTech community do? There are several things.
First of all, the government should ensure the country remains open to tech talent and tech entrepreneurs no matter where they hail from – for example by relaxing visa requirements for skilled workers. It can also do more to nurture home-grown tech talent through education and skills policy.
Though it will be easier said than done, during the Brexit negotiations the UK government should do its best to assure its financial services companies, including FinTechs, maintain access to the European market. Failing that, the government should concentrate on making it as easy as possible for UK FinTechs to enter from the outside. One way is to harmonize UK financial services data standards with those coming into force in Europe.
The UK government should also do what it can to ensure UK FinTech startups have access to VC and other early stage funding, particularly if EU-based sources, like those currently supplied by the European Investment Fund (EIF), dry up. It can do this through tax and other policy, including strengthening the role of the British Business Bank (BBB).
To be clear, I am not saying that Brexit has sounded the death knell for UK FinTech. Quite the contrary: there will doubtless be opportunities as well as challenges.
Outside the larger EU framework, the UK government might have more room to introduce FinTech-friendly regulation or pursue policy to make it easier for these firms to find financing. It would also find it easier enter into bilateral agreements with other countries. If the UK can for instance get closer to the US administration on the FinTech topic, bringing each country’s FinTechs and investors closer together, UK FinTechs would no doubt profit.
The shock may also prove to be a catalyst, pushing UK-based entrepreneurs and tech talent to work harder to produce the increased efficiencies and lower costs that FinTech promises.
But there is no doubt that Brexit has upended the apple cart. As long as the current uncertainty remains, concern is more than warranted.
My good friend Chris Skinner has been pointing out the different ways regulators around the world are supporting the FinTech ecosystem. And rightly so. From setting up dedicated FinTech offices to providing sandboxed environments to safely try new tech, regulators in the UK, Singapore, Hong Kong and elsewhere are actively focused on financial services innovation.
In other words, along with their remit as policy makers, rule writers and enforcers, these regulators are now also taking on a business development role. This is a significant development, and it is to be welcomed. But if regulators want to be really effective, they need to approach this new role in the right way.
Here’s why I think so.
Fast track
Financial services is one of the most highly regulated industries in the world. Even in the most stable times the regulator plays a key role in how banks run their businesses and how a given financial center operates.
In our current environment of highly disruptive new tech and massive innovation, with high numbers of new entrants from outside the industry and banks rethinking business models, regulatory decisions will have even more impact.
If the regulator is not part of the innovation ecosystem it can among other things greatly reduce the speed at which innovative ideas become workable products. And let’s make no mistake: when it comes to business development, time to market is essential.
Your regulator, the FinTech accelerator
As I have written elsewhere, I believe strongly both that innovation can be orchestrated, and that open collaboration – even among competitors – is unavoidable in today’s complex world.
I think regulators are in a unique position to take on the role of innovation orchestrators. In particular I believe they:
Sandboxed environments, such as those of the FCA and MAS, are I think particularly powerful tools. They are also prudent measures in our age of highly disruptive, often cloud-based, FinTech, and considering such thorny issues as data location, data privacy, operational resiliency and so on.
A virtuous circle
Building and supporting this kind of an innovation ecosystem can result in the following virtuous circle of advantages:
Compete together
One last thought on competition.
There is no doubt we are seeing a fierce battle between financial centers being played out in the tech and innovation space. When regulators become business developers, they naturally join the fray. But it is in the interest of all regulators to strengthen the global financial system as a whole as well.
The good news is that we are also seeing cooperation between regulators, as with recent bilateral agreements between the UK and Singapore authorities or the UK and Australian ones.
This is the right way to go. Just as in the tech environment, in the regulatory environment we need to build the standards, the rules, and the rest of the foundation together, across jurisdictions.
FinTechs in jurisdictions with supportive regulators should seek them out and become part of the dialog. Those regulators still on the sidelines, or which take an overly restrictive stance on innovation, risk getting in the way of progress – and potentially doing harm to the financial centers they are tasked with caring for.
The arrival of an important new technology is generally met with loud choruses of both hype and skepticism. Some see the next big thing – others say it is all overblown. That is certainly the case with blockchain.
So how to filter out the noise? One way is to take a tip from betting markets: don’t focus on what people say, but where they put their money.
Let me explain.
The mainstream thinks blockchain is going mainstream
I think one of the most significant yet overlooked developments in the blockchain world is the entry of mainstream high-tech firms and consultancies. Both IBM and Microsoft have unveiled large-scale blockchain offerings, and the likes of Deloitte, Accenture, PWC, KPMG and Cap Gemini are setting up or considering blockchain businesses.
This is not to say established players will automatically be successful. But it clearly indicates growing mainstream consensus on the blockchain’s potential, and that is significant: Blockchain is the biggest disruptor to industries since the introduction of the internet but it will not happen overnight.
My discussions with industry leaders bear this out: people tell me time and again that we are at an inflection point similar to what we experienced 20 years ago when the Internet arrived.
I agree. Just consider the breadth of some of the offerings. IBM for instance is targeting the whole enterprise stack – meaning hardware, software and services. We can assume others are looking to do the same: Bletchley is Microsoft’s architectural approach to building an Enterprise Consortium Blockchain Ecosystem. To be clear, this is not a new blockchain stack. It is Microsoft’s approach to bring distributed ledger (blockchain) platforms into the enterprise to build real solutions addressing real business problems while keeping the platform open.
That means that, just as in the early days of the Internet, the whole stack is now in play.
What can we expect from this? I see major disruption among other things in the following areas in the enterprise stack:
Infrastructure layer:
Application layer:
All along the Enterprise stack
The fact that so many established players see such potential for disruption up and down the stack just confirms me in my belief that broad-based transformation is coming.
So the next time someone asks you if blockchain is for real, just tell them to follow the cash. When people start putting their money where their mouths are, you can be sure that something significant is going on.
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