THE WAVE

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Listen to this quote – The disruption posed by financial technologies is like a tidal wave. We overestimate the speed of change in the short term but we radically underestimate the magnitude of their impact in the long term. Banks have a rapidly narrowing window of opportunity to position themselves to ride the wave.

It is good, exciting and dangerous to ride a wave. Those who have known me also have known the team and term “the wave”. The financial world is changing and it is changing quickly, powerfully and radically. When I say radical, I am taking the literal meaning of the world – “to the root”. A very powerful wave is coming and is already here in many ways. Banking is still very necessary. The exchange of funds and the investment of needed shared capital is still very very beneficial to all parties involved. But, what has happened is that now that everything else (and I mean everything) is instantaneously and democratically distributed, banks and banking have remained centralized, regulated and hyper-controlled.

Oh, it is easy to understand. With the advent and actuality of electronic data and their breaches. With the speed at which money is moving and the increased risk of loss due to fraud (due to the speed of movement), there needs to be something somewhere that has a braking mechanism to be able to take the twists and turns without wiping out.

But look carefully at the picture above (thank you to Don Montgomery/Maverick’s Invitational). You will notice, surfboards have no brakes. When a big wave comes, one of the most important things to remember is that you really cannot control it. Also, the more we try to control it, the more stressful and worse it damages. Think of this in our personal lives and work lives. The more we attempt to control what is happening, the more we open ourselves up to all manner of ills.

Here is an example of how things are changing whether our banks and financial institutions want them to or not. The pervasiveness of smartphones and venture capital backed entrepreneurs and techpreneurs is finally beginning to threaten the opaque, multi-layered and transaction cost laden financial systems. Eventually, depositors and borrowers will get more direct, more immediate and cheaper access to each other cutting into the margins of the banks that are today in the middle. Just one digital settlement technology call Blockchain is estimated to save lenders more than $20 billion/year in costs. The big risk for traditional banks is not erosion of margins but customers fleeing from them leaving them irrelevant and stranded with costly legacy infrastructure.

I am kind of “OK” with that since I am at a Third Party Processing Company. But, I said kind of…However, even the best private sector banks in the world are struggling with this disruption. This is because banks are designed to be conservative and risk averse with cultures that are unsuited to rapid change and unable to attract the best technological talent. The risk for our public sector banks is that they become sitting ducks as new competitors nibble away at their best customers and most lucrative part of their business leaving them with a declining and low margin portfolio.

Here is a thought – instead of using regulations and stalling devices to block the progress of Fintech companies, banks could work with these companies combining their strengths. The startups and fintechs have speed and maneuverability, the banks have capital and reputation. This could truly improve the experience for all involved. It is coming…..NOW!

Remember the quote – The disruption posed by financial technologies is like a tidal wave. We overestimate the speed of change in the short term but we radically underestimate the magnitude of their impact in the long term. Banks have a rapidly narrowing window of opportunity to position themselves to ride the wave. 

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