Digital Bank or FinTech? You're not a digital bank…

If you listen to the Breaking Banks AM Radio Show today (also available via stream and podcast) you’ll hear a spirited rematch of the Great Digital Banking Debate that Michal Panowicz and I had on Twitter a few weeks ago. The debate concluded with a split decision – Twitter declaring the FinTech team the winner, and an in-house count declaring the Digital Bank team the winner. This pretty much sums up the industry debate right now. Anyone who is in a FinTech, of course, believes that FinTech represents the future of the banking experience, but Digital Bankers, especially the more competent players like Michal Panowicz, aren’t ready to lie down and die just yet, and that’s good for banking.

Unfortunately, it’s really just a numbers game right now. The facts as they stand today show that most of the investment in digital transformation are going into compliance and simply retooling core systems for things like real-time payments than doing a full digital bank rework as mBank in Poland did. To be clear there are some really outstanding digital banks out there today making their best efforts, with very competent CEOs and technical, experience and digital teams executing behind that vision. The promising digital banks include banks that are all in, and banks whose CEOs get it and have started the process to all-in. They would include the likes of Garanti in Turkey, Hana Bank in South Korea, mBank in Poland, BBVA,  Roberto’s team at Che Banca, most of the Big 4 Aussie banks are on their way, ASB and Westpac in NZ are stars, Amex (ok not a bank, but an FI), Capital One in the US who is busily in acquisition mode and USAA – probably the most FinTech “bank” in the US today. If you look, you can find maybe two dozen really committed digital banks, mostly outside the US that will be successful at a digital transformation. Barclays, Santander, Lloyds, RBS, Deutsche, Chase, DBS, the Nordic leaders and others all are getting close, but they’ve got a little way to go – mainly it just involves getting bankers out of the way of digital bankers.

Juan Pedro and the team at Accenture did a fantastic piece on this last year entitled “The Digital Disruptors” where they made the distinction pretty simple (no pun intended) and clear:

“Most mainstream banks simply aren’t using technology smartly enough to deliver the transformation they need. At the same time, some of their pioneering peers have recognized that every business is now (or should be) a digital business, and they are starting to position themselves as digital winners” – Accenture Digital Disruptor Report, Feb 2014

We talk about digital banks and what it takes to be one all the time. Chris Skinner even called his latest book Digital Bank – if you haven’t read it you should. The reality, though, is that in most mainstream banks we’re still debating ‘how digital’ the bank should be. Not “if”, mind you (thank goodness we migrated from that probably on a net basis in 2013), but when and how much ‘digital’ the bank should be. For someone who has been talking the need to be digital first since 2006, it’s a relief that finally this is fashionable. So now everyone is saying “Yes, we’re a digital bank and we’re going to give those FinTech companies a run for their money!” Great, but saying you are a digital bank doesn’t make it so.

Be a Digital Bank, don't say you are one...

Be a Digital Bank, don’t say you are one…

So do you want to know if you are a Digital Bank? Take the test below and rank yourself out of 5 for each element. If you average 4-5 you are a digital bank. Below 3 – nope. While this is retail banking focused, the same test could apply with a little imagination to corporate, investment banking, investment services, etc.

The Digital Banking Scorecard

1. A Digital CEO – either a technology geek that has risen the ranks to be a CEO, or a CEO that has had a ‘come to Jesus/FinTech’ moment and has told the entire bank their mission is to be digital. The last point is key – if your CEO hasn’t given your business this mission, you don’t get a 5 here.

2. A Realtime Core – a real-time banking core with the ability to create any product instance from a digital channel in real-time, and the ability to handle real-time settlements on payments across any platform (sort of excludes the entire US banking industry).

3. The Head of Digital is the CEO (and maybe CTO) – Digital is not a department, channel or separate competency, it is simply the job of the bank, and the CEO is the head of Digital with a great team behind him that is fully committed. You can have some specialized competencies under this, but if you have a separate head of digital, you aren’t a digital bank, you only have a digital competency within a traditional bank. Apple and Amazon don’t have Heads of Digital, Tim Cook and Jeff Bezos are the Heads of Digital, but with great teams behind them.

4. Experience Design is HOT – you have a team that is constantly prototyping and revisiting every aspect of customer interaction trying to not just optimize it, but revolutionize it. The CTO and CMO either have an agency on speed dial, or you have a in-house creative team that works with agencies to execute. This is the fastest growing budget line item in digital save core system and real-time retooling. If you don’t have an in-house design team, you aren’t a digital bank. If your CTO has never done a wireframe sketch on a whiteboard or piece of paper, you aren’t a digital bank. If your traditional marketing budget exceeds digital direct, you are not a digital bank. If a product department or head, can override experience design, you’re not a digital bank.

5. Data Science is HOTTER – the ability to leverage off of your data, and the ability to capture more data through devices like wearables is something the CEO is super excited about. The biggest question remains how quickly can you use it. If you don’t have a Head of Data Science you aren’t a digital bank.

6. Regulations are never an excuse – To be a digital bank you will never use regulation as an excuse. Here’s the test – in the last 12 months you’ve gone to the regulator with a technology or experience pilot that doesn’t fit into current regs to get their approval to proceed. If you haven’t done this, you aren’t a digital bank.

7. You are partnering with, investing in or  acquiring FinTechs – the smart digital banks know the bigger they get, the harder it is to innovate purely as a function of size. So the smarter banks (that’s another book by the way) are finding ways to learn faster through partnerships with very agile teams that are thinking differently about the problem. If you’ve run a ‘hackathon’ but don’t fund a fintech startup, you aren’t a digital bank.

8. You have a Mobile or Retail/App Independent on the Board – mobile is a core competency, but the banking sector is significantly behind most other industries in terms of innovative approaches (not necessarily in adoption though), so having a non-bank mobile person on the board to level set board expectations is really key.

9. You are non-plussed about branches – you are well past arguing that people love branches. You think you’ll keep them if you can continue to justify a right-sized network (much smaller numbers and square footage) based on economics, but you are already channel agnostic. Whatever channel the customer uses you will support. If you can not sign up a customer for a basic bank account in-app, you are not a digital bank.

10. Everyone’s job is digital – Everyone is passionate about building great experiences for your customers and everyone believes that the best way to do that moving forward is digital, not ‘future branches’ or other such silliness. If you don’t allow access to Facebook, Twitter or YouTube in your bank, you are not a digital bank. If you have a senior executive that has shot down a digital initiative in favor of status quo, you are not a digital bank. If your digital budget doesn’t exceed your real-estate budget, you are not a digital bank. If at least 30% of your staff don’t know how to do some basic sort of coding, you are not a digital bank.

Everyone wants to be one, very few are

In the debate Michal Panowicz and I had on Twitter and in New York yesterday, I was arguing whether FinTech would win out over banks in the battle for Phone/Device-share and customer mind-share. The simple fact is that there is a great deal more effort going into FinTech’s reshaping the industry today, than through banks – so that means there’s only one outcome – FinTechs as a class take market share from Incumbents. Anyone who argues differently is blind to the reality and momentum behind innovation in the sector. If banks were defending their market share, Lending Club and 36 other FinTech companies wouldn’t have valuations of $1Bn.

Having said that, great digital banks will survive. So everyone says, “Great, then I’m a digital bank!”

Saying you are a digital bank, and being a digital bank are two very different things. To be a digital bank, you have to forget being a bank (mostly). If you are arguing that we need banks the way they are, or because of regulation, or yada yada yada… you aren’t a digital bank. A digital bank knows that if they don’t completely change the way they work, they are screwed. If you are in the guts of this change right now, you are not a digital bank… but there is hope for you.

If you look at the scorecard I gave above, you’ll find most of the digital banks I mentioned get a 4 or 5 on each item. Most regular banks get a 1 or 2.

Everyone wants to be a digital bank, but very few are digital banks, and most will never be a digital bank at their current rate, based on their current structure. This is time to get real – don’t talk the talk in the hope that this will be enough. Be the Digital my friend.

The debate on the future of banking is not over, but it will be soon

How does one predict the future? Admittedly it is easier to predict what will happen 5 or 10 years from now, than 50 years, but at the same time, we’ve got trouble predicting what the stock market or weather patterns will do a few weeks from now, let alone the banking system. However, when we look at long-term trends a few things are abundantly clear.

  • Computers are getting cheaper, faster and smaller
  • Adoption of technology in all works of life is speeding up, most recently mobile, but soon wearables
  • Experiences are rapidly changing as technology is injected
  • There is a constant disruption of traditional business models
  • Machine Intelligence is coming


In preparation for my next book Augmented I studied disruption that has taken place over the last 250 years. In those 250 years, no single industry has ever, I repeat ever, survived technology disruption unscathed. In every single instance the incumbent players have been displaced by those who have the better grip on the new paradigms. In some instances the incumbents survive, but they no longer dominate.

There’s been much debate over the last week on whether or not FinTech will disrupt banking, or whether banking can survive through iteration and compete.


In Jaime Dimon’s letter to shareholders last week he warned “Silicon Valley is coming”. In his letter Dimon warned “There are hundreds of startups with a lot of brains and money working on various alternatives to traditional banking”. Dimon was concerned enough to flag this and he cited the inability of banks like Chase to be able to reduce time on loan approvals as an example of where start-ups had the advantage. The conclusion – big banks like Chase have to change fast or partner with start-ups to retain relevance.

Dimon sees it coming. The battle against FinTech start-ups for banking is not in products or features, it is not in a new skin on an old model – it is in rethinking the fundamentals.

Let’s say a bank like Chase commits to changing their approvals on loans at the executive committee level – what has to happen?

Legal and compliance have to approve the change. A new process must be designed to enable say mobile, real-time loan approval. New risk systems must be developed. The core system probably has to be replaced. That’s even before we worry about what the experience is going to be or look like – whether it is an app, an embedded experience, or similar.


For Lending Club, they don’t have these constraints. They model new behavior, design a new system from the ground up and go. Their funding, speed and lack of legacy constraints means they can do it much faster than the incumbent. Hence why LendingClub was the 4th largest tech IPO in history, and Chase, HSBC, BofA and Wells all still require days or longer to approve a loan today.




You might argue this is immaterial, that LendingClub has only taken a fraction of the lending market in the US, and that it is not a long-term threat to Chase – that’s not what Dimon thinks. The issue is, it is only under the crucible of the market and pressure from FinTech start-ups that banks like Chase finally are feeling the need to change, and then admittedly that change will be complex, expensive and lengthy.


Every FinTech start-up, and there are thousands of them, have bet the farm on their idea. The number of banks, wealth managers and insurers that have a sizeable innovation fund for investing in FinTech? A handful. The number of banks, wealth managers and insurers that have built an independent brand or business unit that is not constrained by legacy systems or metrics so that it can truly innovate? Less than 20 globally, amongst more than 1 million banks, hundreds of thousands of insurers and millions of advisory firms globally.

Let’s look at payments. Who are innovating payments today? M-Pesa, PayPal, Apple Pay, Bitcoin, Venmo, Dwolla, and others. Not one bank globally has led the charge on payments disruption, which is why banks in the US have been forced to jump onboard the Apple bandwagon despite the interchange penalties.  Everyone knew that mobile payments were coming, but banks wanted to wait and see what the ROI would be, what the regulators would say – tech and start-ups just did it.


At the heart of the Financial Services industry is an aversion to risk. While banks are reasonably profitable as a whole, investing billions of dollars in uncertain outcomes is not their modus operandi, but it is for Silicon Valley players and the thousands of other start-ups around the world, as it is for Apple, Google, Microsoft and the technology sector.


Who will dominate?

Within 10 years the fastest growing banks around the world will be technology companies, not banks. The fastest growing brands in banking will be those that have taken just one single slice of the universal banking model and optimized it, creating a compelling real-time experience – they won’t be businesses that own a charter. Many of these will need to partner with banks who do the boring compliance stuff, but increasingly even the choice of those bank partners will be driven by their technical competency to work with a start-up.

In the end this is a numbers game. When it comes to disrupting an industry like banking, no other industry in the last 250 years has faced as much competition from new entrants split across product lines than banking is facing today. The idea of bundled universal banking is one that cannot survive technology disruption. Why? Because getting an instant loan is just one of dozens and dozens of experiences that are currently being unbundled and optimized by FinTech start-ups, and customer behavior is unreservedly shifting towards cherry-picking optimized services – not bundled, banking services. What LendingClub, Betterment, ApplePay, Moven and others are teaching us is that banks are not the best in the world at Lending, Investment, Payments or Bank Accounts.


Here’s what startups have going for them:

  • Well funded
  • Unconstrained by traditional thinking
  • No legal or compliance constraints – such issues relegated to ‘design inputs’
  • Myopic focus on one experience area
  • Better able to attract technical talent
  • Better at experience design
  • Sheer numbers
  • No legacy base
  • Start-up culture


Here’s what banks have going against them:

  • Slow to fund
  • Constrained by ‘universal banking’ model
  • Tremendous compliance/legal inertia design to prevent change
  • Focused on hundreds or thousands of ‘products’
  • Losing key talent to start-ups
  • Focused on features and channels, rarely on experience
  • They don’t see the wave of FinTech challengers coming
  • Tons of legacy issues
  • Culture of risk aversion – anything new is risky


The first banks to be victims of this will likely be the largest banks of the 80s and 90s who have just missed the boat on digital transformation, or the smaller regional and community players who just can not invest adequately to stay relevant. However, even those that truly wish to transform, will still find it difficult to break out of their current experience sets, their product processes and legacy constraints. It is here where start-ups unabashedly have a huge, unassailable advantage.

Some banks will survive, that is not at dispute. The back-end around regulation and the requirements for KYC will take longer to shift than the front-end. In the meantime, however, the banking industry as a whole will be turned on its head. Banking as it is today, will likely survive for some decades in limited numbers, but the players that own the day-to-day banking experience in 10 years won’t be banks, they’ll be new players. They’ll be 30 or 40 “unicorns” worth Billions of dollars each that are focused on one or two incredible experiences end to end.


Here’s where the macro futurist view is absolutely critical – This is not about product,  processes,  features, or channels – but a money or banking experience embedded in your life through technology. This is where the next 10 years is taking us fast – embedded experiences provided by technology. Those experiences are best unbundled. Sorry Michal Panowicz, that’s what I think you’re missing in this debate.

mBank has done well with their approach to digital, but haven't fundamentally iterated basic product/channel model with experiences

mBank has done well with their approach to digital, but haven’t fundamentally iterated basic product/channel model with experiences


Banks as a whole can’t get past products, processes, features and channels. While a handful will survive because they have bred a culture of adaptability, they won’t thrive until they voluntarily break apart their current structures to build compelling experiences, and that is the rub – there’s not a bank in the world today that is thinking about investing in the future in that way – independently branded experiences. But there are 45,000 FinTech start-ups that are.

The future is a numbers game; one that banks on a whole can not win because most haven’t even started to play. Banks won’t cease to exist, but the banking experience of today will.

The British are coming… with FinTech!

The unconventional and always entertaining Mayor of London descended with his team on Midtown New York City today to launch a new initiative between the two cities, with Arianna Huffington kicking off the promotional event.


Boris Johnson, who recently turned his hand to a humorous yet poignant biography of Winston Churchill, has become a big advocate of Tech and it’s role in job creation and investment in the London economy.


Johnson and his team came to New York to pitch for greater collaboration between the two global Financial centers for the establishment of a platform for cross-border investment, technology sharing and resourcing. FinTech is the hip term given to “Financial Technology”, or the use of technology to reform, reboot and disrupt old-school banking. Some great examples of this were being showcased by Johnson and the “Innovate Finance” initiative that is sponsored by the City of London.


Interviewing the Mayor of London on the emerging FinTech sector in London and NYC

Yours truly interviewing the Mayor of London on emerging FinTech 


According to research announced just yesterday FinTech investment globally trebled last year to $6.8Bn, and it’s set to increase to $18Bn just in NYC in the next few years. London is definitely taking its share of investment in this growth arena. New figures compiled by London & Partners show that London-based tech firms attracted $795.2m from US investors in 2014, more than doubling the previous record figure from 2012 of $296m.


I had the opportunity to interview him for my Radio Show Breaking Banks and was able to get some insights into London’s positioning. I asked him why London was making such a strong play for FinTech investment, and he wasn’t shy in staking London’s claim on the title of global FinTech centre.

“We’ve got the banks, we’ve got the biggest financial sector anywhere in the world, but we’ve also got the expertise. We’ve got more people involved in the sector than any other European Capital and probably any capital in the world, and it’s growing the whole time.”


He also focused on the core development skills that will continue to fuel growth, and it wasn’t a gaggle of bankers where Johnson sees the future of the sector.

“We’ve got the brains. We’ve got the coders, the young graduates, and it’s a fantastic place to live…it’s the buzz, it’s the bars, it’s the vibe. It’s safe, it’s clean, and it’s green.”


You’d expect that from the Mayor who hosted the 2012 Summer Olympics.


Who will dominate? NYC or London?

When I asked him about whether it was really NYC vs London, he softened the rhetoric on London and recognized collaboration was the ideal outcome for both cities.

“Just recognize that this is win-win. Obviously New York and London will always be in competition to some extent, but there is a sense that the better New York does the better London does. The better London does, the better New York does. Breakthroughs in New York are instantly replicated in London. It all moves ahead at a great pace.”


American investors are putting more money into London-based technology companies than ever before, according to new figures announced by Johnson today. In total, London firms attracted $1.4 billion in venture capital funding in 2014, meaning that US funds were responsible for over half of all new funding received by the city’s tech sector.


London-based FinTech firm TransferWise recently announced $58m of new investment from Silicon Valley investment firm Andreessen Horowitz. TransferWise also announced today in New York that it is to open offices in New York and Tampa, Florida.

“London has been a great place to start and grow our business,” said Taavet Hinrikus, co-founder of TransferWise. “The city’s status as both a tech and financial hub means we’ve been able to grow the company from just my co-founder and I to a company of 250 employees, processing over £3bn worth of customers’ money in four years.”


TransferWise is a International Remittance business with a difference

TransferWise is a remittance business with a difference


London-based Digital Shadows, which provides a cyber-threat intelligence service, also revealed $8m of new venture capital funding at the event, led by US West Coast firm Storm Ventures.

Alastair Paterson, CEO of Digital Shadows, said: “We will use this investment as a springboard to scale up Digital Shadows in order to reach new markets. We have been able to grow from a London-based start-up into a company that is now taking on global challenges in cybersecurity. London clearly has the infrastructure in place to allow other companies to follow in our footsteps and expand into global markets.”


The Financial Services sector caters for around 8.5% of U.S. GDP, and the size of the deposit market is around U.S $10 Trillion. The Financial Services space feels a lot like the Internet did back in 1999. Cities like London and New York, and pundits like Boris Johnson are starting to understand that the future of the banking system is in technology.


Yes, the British are coming, but more importantly  Tech is coming to reimagine the finance sector, and that can’t be anything but a net positive for consumers, employees and entrepreneurs alike.

Why the Facebook of Banking won’t own a charter

2014 was the biggest year in FinTech by far with billions being invested globally, which is to be expected in a global growth sector. But how much was invested globally in FinTech this year? It depends on how you classify FinTech. StrategyEye estimated that there was $2.8Bn raised in 2014 via venture capital investments in FinTech. However, this doesn’t gel with the fact that Crunchbase and MarketsMedia calculated that in the first quarter of 2014 alone $1.7Bn was invested in 167 deals. These metrics also don’t include the IPO of LendingClub, which raised over $800m alone, or the plethora of $100m+ investments that banks like HSBC, Sberbank, BBVA, Santander and others have committed to FinTech. Just in Bitcoin related startups alone, more than $400m was invested in 2014. At Money2020 this year a venture capital panel predicted that venture capital deployment in FinTech will top $20Bn in 2015, whereas Accenture recently predicted FinTech investments would reach at least $8Bn by 2018 in New York alone.

So whether you believe the FinTech investments this year were $6Bn or whether you believe the bigger estimates of upwards of $18Bn, one thing is clear – FinTech is really hot right now. But it’s only going to get hotter.


Silicon Valley leaders like Marc Andreesen and others have put out the challenge for start-ups to change the world of banking, and in this respect Bitcoin has received more than its fair share of attention, despite being considered one of the worst investment or asset classes in 2014. Perhaps with the speculation dying down on Bitcoin, we can finally see investments in the Blockchain unencumbered by hype of the crypto-currency potentially hitting USD$1m per BTC that we saw in December of 2013. The reason Andreesen and others have been looking to Bitcoin as the platform for disruption is that when it comes to pure play digital banks, it is pretty clear that the so-called “Facebook of Banking” won’t have a banking charter.  Why not?

Scale and high-growth potential is always going to be the metric of a true bank-killer start-up, but when you look at what is required to build a start-up bank with more than 100 million customers globally, you run into unique problems in banking that you would never have with say a social media or consumer tech startup.

Capital Adequacy is a lousy Investment

One of the key issues in funding a banking start-up is capital adequacy requirements. To understand the scale of this funding requirement let’s look at JP Morgan Chase who has approximately 80-85 million customers in the United States, with a deposit base of $1.2 Trillion. Current FDIC capital asset ratio requirements requires JP Morgan Chase to maintain capital adequacy of a minimum of $50 Billion in capital just to support this deposit base. Even with the explosion of investment in FinTech, we’re not going to see VC’s participate in funding capital adequacy – ain’t going to happen. VC’s want growth and want to fuel growth, but if you’ve got a $50Bn capital adequacy baseline, you simply aren’t funding growth, you’re funding compliance – and that isn’t going to get investors excited.

Disruptive Banks might own the Stack, but it’s very unlikely

Jack Gavigan and I have been debating this openly on Twitter for a few months, and I don’t think we’ll agree on this until the dust settles and shows who was right. Part of this discussion stemmed from a great Andressen tweet from Feb where he said “I am dying to fund a disruptive bank.”

The long and the short of the debate is this. Can you truly disrupt banking without owning the stack and owning a charter?

If you look at the start-up landscape though you’ll see three overarching trends. Firstly, the fintech start-up landscape is dominated by non-banks without charters who continue to get the bulk of VC investment, so purely on a statistical basis, the chances that a chartered start-up will grow to the size required is extremely low.

Secondly, most start-ups don’t want the pain of compliance and regulation that comes with owning a charter, for the reasons mentioned above – a charter is not an advantage when it comes to raising money, in fact, it is seen as a deterrent in fund raising. Some start-ups grow to the point, as with Lending Club, where they do own the ‘full’ stack in their space, and have grown to a scale where they can cope with the compliance workload, but even so they aren’t a bank with a charter.

Thirdly, banks like the $100 million club have realized that the threat in FinTech is not from a single charter and full stack-owning start-up, but from the hundreds or thousands of start-ups chipping away at the myriad of banking experiences. Tom Loverro captured this really well in his recent SlideShare discussion of the trends in banking disrpution


There’s not one banking start-up threatening banks, there are thousands

Simply put, the upsides of owning the full stack just aren’t there for start-ups or investors, and the likelihood that a traditional play with a charter will emerge as a mega digital bank with 100 million customers is basically zero at this point because that’s not how Fintech is panning out, and it’s not how investors invest.

Death by Four Thousands Cuts

What the $100 Million club worked out, and what VC’s have mostly worked out, is that the threat to traditional banks is not a pure-play digital bank that attacks banking across the board. If you look globally for evidence of that sort of a bank you can really only find two examples – mBank in Poland and Fidor in Germany. While mBank has been phenomenally successful at redefining themselves as a digital bank, they’re just not looking to launch outside of Poland, and certainly not in the defining FinTech markets like New York or London. Fidor is working hard to launch outside of Germany, not just a core banking system, but increasingly as a ‘bank as a platform’ or bank as a service. Fidor is largely agnostic to who owns the customer or distribution capability – they don’t require it.

On the other hand, AngelList lists 3,800 FinTech start-ups alone attacking the banking or financial services space. That’s a ratio of 1:2000 start-ups that believe investing in the experience is much more important that investing in the stack or the charter.

When you look at the last 250 years of technology disruption, the biggest players that have disrupted industries were never players who iterated on the existing industry model, and they weren’t incumbents. They were players who thought fundamentally differently about the business model, distribution model or the underlying technology. It’s why Amazon dominates book sales today and traditional book distributors are falling by the wayside, and it’s why Apple and Spotify dominate music, while Virgin, Tower Records and HMV stores are all gone.

The trick to FinTech innovation is not growing a new, better stack. It’s building better experiences. At the end of the day 100 million customers are going to drive the creation of a global downloadable bank account, a global P2P lending service, or a new payments ecosystem – not the FED, FDIC, FSA, SEC, ECB, etc. Owning a charter isn’t going to be a differentiator to investors or customers.

On the other hand, as FinTech players mature into 100 million customer businesses, scale will demand a stack that provides real-time, secure utility and mostly flawless experience. Many of these players will find that their bank partners, processors, lending partners and others can’t grow quick enough and aren’t flexible enough to reach that sort of escape velocity, which will require them to mature their stack, and maybe even invest in or acquire some businesses that have relationships with regulators that smooth that growth curve. In fact, it is increasingly unlikely that west coast FinTech start-ups like Clinkle, Plastc and Coin will get off the ground as Silicon Valley realizes that you just can’t start a Facebook of Banking in a garage – at some point you need to interface with the banking/payment ecosystem and the learning curve is too steep for Stamford graduates with a tech competency.

This is why we’ll continue to see a separation of the distribution business and the charter/stack/manufacturing elements of the banking business. It’s why Antony Jenkins from Barclays said the Universal Model of Banking is over last week. It’s also why some of the biggest banks in the world are investing in start-ups, incubators and innovation labs – because they know they can’t produce the experiences required for the customer of tomorrow.

To be the Facebook of Banking you need 100 million customers who love your experience and you need funding, neither of which (it turns out) require you to own a charter or the full stack. But you definitely won’t get there without a differentiated experience.

Why Ebola might finally kill cash

The Fear Factor on Ebola is over the top right now. We are spending countless hours in the media analyzing footage of health workers, figuring out how a nurse in Texas contracted the disease despite strict quarantine procedures, and debating over whether to travel on aircraft. In all of this though, the transmission methods of Ebola have been well understood for more than 30 years, and there has been no mutation of the virus that would suggest transmission has evolved. Although I did think Borowitz’s take on this was classic



It is estimated by the WHO that up to 80% of viral and bacterial transmissions occur through contact via your hands. That being said, it turns out physical bank notes are a huge transmission vector for viruses like Ebola.

“The NYU researchers identified 3,000 types of bacteria in all — many times more than in previous studies that examined samples under a microscope,” wrote WSJ’s Robert Lee Hotz.
(See “Why you shouldn’t put your money where your mouth is” April 18, 2014 –

Viruses and bacteria can live on most surfaces for about 48 hours, but paper money can reportedly transport a live flu virus for up to 17 days. A study published in Antimicrobial Resistance and Infection Control found that some microbes can have an even longer lifespan on plastic polymer bank notes.


A team of researchers from the departments of Biochemistry and Microbiology, Ebonyi State University, Abakaliki, had, in a recent work published in International Journal of Advanced Biological Research, isolated and identified some disease-causing microorganisms on Nigerian currency notes obtained from bankers, beggars, market women and bus conductors in Lagos, Onitsha, Enugu and Abakaliki. They found that the currencies used by beggers and hawkers were extremely contaminated with various disease causing microorganisms followed by the currency used by traders, taxi drivers and market women, advising that adequate care must be taken by those handling these currencies. The strongest correlation it appears is when someone handles cash, and then eats soon after. This statistically dramatically increases the chances of transmission. In this study, however, they appear to suggest that Polymer bank notes are less effective means of virus or bacterial transmission.


Yesterday I interviewed Peter Schlebusch the CEO Private and Business Banking for Standard Bank, the largest bank (by assets) on the African continent. They have thousands of staff in Africa and staff traveling to Ebola Virus Disease (EVD) effected zones frequently. Schlebusch said that transmission of the Ebola virus via cash notes should not be discounted…

“There’s been numerous studies over time on the hygiene of banknotes and the passing of banknotes from one person to another. Some of [our] colleagues in West Africa will tell [us] that there is a growing body of evidence to suggest that some of the Ebola transmission could take place via banknotes, which I guess just makes another case for mobile money” – Peter Schlebusch (Standard Bank), Breaking Banks Radio Show, October 16th, 2014

To listen to the full interview click here


While I don’t want to get caught up in fear mongering over Ebola transmission, because there is already far too much hype. It would seem the prudent thing is to start using Moven, Venmo, ApplePay and Google Wallet exclusively. The death of cash appears inevitable in any case…

It would just be better that we use this as a catalyst for the death of cash, rather than the death of cash users.



The future of banking – Google Think series

I recently presented at Google’s Think Finance 2014, in Sao Paulo Brazil, where I talked about the future of banking — specifically trends that we correctly predicted and trends that we got wrong. For instance, Microsoft correctly predicted that people would pay for transportation via their smartphones, but they didn’t predict that the whole taxi industry would be disrupted by startups like Uber.

I also talk about how big data will lead to automated financial advice, and how paper application forms will of necessity be phased out of the digital world. How a debit or credit card can’t tell users their most requested piece of information from a bank (“what’s my balance”?), help them with simple decisions like “can I afford this?” and how the smartphone will soon be the center of banking – because it provides context, advice and can lead to better understanding about customer behavior.

Watch my full keynote to understand the future of the banking industry and why I predicted in 2009 and again in 2011, that the smartphone would redefine the very nature of banking.

Enough already with the "Branch of the Future"

Whether it is Bank of Queensland with their Hipster Branch launch, Citi’s famedApple-Store Branches, NAB’s Crowd concept, Unicredit “Branch of the Future” in Italy and Bulgaria, PNC’s Tellerless Branches, smaller regional players likeSouth Shore Bank and ConestogaBankWerx, or the launch of Video-Interactive Teller’s for TEB, Ion Bank, Banca Popolare and others, we seem to be hearing about new ‘Branches of the Future’ constantly. However, withdeclining branch activity across the board in developed markets, is the very term branch of the future part of the problem?

When BankWerx launched their new ‘branch of the future’ the press reported that they were offering free Wifi, phone charging stations and free coffee to engage prospective customers. Then these guys opened up next door…



There was an excellent recent talk by Jon Blakeney from i-AM Associates discussing how bank branches should be about todays customer, not the bank branch of the future. “No one has ever asked us to design the restaurant of the future” said Blakeney in his recent Next Bank keynote, and in that statement alone we identify one of the key hangups that banks have over changing distribution models.

With branches having been so central to the distribution model of banking in the past, it’s obvious that many banks will struggle to let go of this mode of revenue delivery, at least until such time that branches become clear loss leaders. Thus, for now there appears an inordinant amount of effort being put into ‘saving’ the old distribution models with a rethink, reboot or refresh – a future iteration that might restore the old behaviors of customers.

The problem is that the economics of branching is struggling as footfall declines (see Going, Going, Gone!), and while in some emerging markets branch traffic is still increasing on a net basis as the middle-class grows and large numbers of unbanked are becoming “banked”, the overall outlook for branch networks is still trending negative. Just as it has been on a net basis for most storefront retail of other easily digitized products such as books, music, movies, etc (see Celent data below).

The problem here for banks though, is one of focus. Branch activity largely is not declining because the branch is simply designed poorly, has too many tellers or teller stations, ordoesn’t have enough technology embedded – it is declining because customers just don’t need to visit branches like they used to. Banks should be cognizant of the fact that while refreshing branches will help with some segments of existing customers, and might reduce overall network cost, it’s not going to reverse consumer behavior trending away from branches.

The looming issue is new revenue. According to Javelin Strategy and Research, by 2015 Gen Y income will already exceed that of Baby Boomers. By 2020, their income is projected to exceed that of both Baby Boomers and Gen X. That’s just six years away. 78% of these Gen Yers cite Mobile Banking as the single most important factor for choosing a bank. But the problem for banks is simple – mobile doesn’t produce revenue. For leading banks they might generate 10-15% of their revenue via online today, but the bulk of revenue is still recognized in the branch (often incorrectly so).

How do we transition?

We’ve got all this real-estate, what do we do with it?

There are three key questions or issues on the changes impacting distribution methodology that continually come up:

  1. How do we get customers back in the branch?,
  2. What do we do with all this real-estate we’ve got, and
  3. We’ve got 5 year contracts with all these landlords, we just can’t unwind our presence that quickly

The first two questions often obfuscate strategy because the primary problem is not fit of the branch to the business, but how to fix under performing branch networks. The last becomes a business case issue – is it worth closing or downsizing a branch. Granted when most of those real estate contracts were signed there was a great deal more skepticism over the risk to branches.

However, the core metrics of branches need to be honestly assessed against the potential for future revenue. Those core metrics need to start with the simple measure of average number of annual visits per individual customer per year. This is the core measure of engagement that we often miss when looking at future branch potential on revenue.

Show me the money baby, not the friction!

The real trick, though, is providing a viable alternative revenue stream through mobile, tablet and web. For that we need a compliance leap – we need compliance on board with digital onboarding of customers, or at a minimum a reduced application/documentation workload for both new and existing customers.

A single view of the customer, and a progressive or tiered KYC approach. In a report issued in June of 2011, the Financial Action Task Force (the global AML standards body) suggested banks and FIs look at this as a solution for better AML compliance, lower costs and for improved financial inclusion. However, the tiered KYC approach also allows for better revenue delivery in real-time and via mobile.

Banks like Fidor are already using this progressive KYC strategy, allowing you to open an account via Facebook initially.

Remember, one of the core reasons we still prefer the branch as banks, is the preference by compliance teams for unique, signed application forms for each product application – this model must die. It simply does not fit with the future of revenue delivery.

Revenue delivery via mobile is inversely correlated with compliance friction. The more unnecessary friction I put in the process, the more unlikely it is that I will ever realistically compete with the branch in respect to revenue delivery.

Building the Bank of the Future

The Bank of the future is all about engagement and relevance. A branch of the future strategy is an effort to retain relevance, but it misses the key point that engagement in-branch is in decline for other reasons. Beyond a spike when a new branch layout is launched, I’ve not seen any data that shows signifcant improved engagement over time – you can bet if we were seeing this trend then the branch of the future enthusiasts would be yelling it from the rooftops.

Here’s the thing – I know we need new branch layouts that remove tellers. I know we need service points, and that they’ll likely be much smaller footprints, but replacing older larger branches so there’s no perceived drop in service. I know complex product revenue will still come through the branch. But we should be talking about building the bank of the future, and not just the branch of the future.

Within just a year the branch will be the least visited and least engaged channel in the channel mix for retail banks in the US, UK, Germany, France, Australia, etc. If your primary distribution or revenue strategy is improving the efficiency of your lowest performing, least engaged channel – then you’re doing it wrong.

I know many of you will argue that it’s still about revenue – that most of the revenue comes through the branch. How can we change that without investment in engagement outside of the branch? That’s the key problem with focusing on a branch of the future strategy – we avoid the real work that needs to be done. In doing so, we might just jeopardize the entire future of the bank.

Bitcoin's failed coup attempt against Wall Street

I’m part of an extremely passionate Bitcoin group on Facebook called “Bitcoin and the Internet of Money”. The group established by resident Facebook thought leader Alex Lightman 8 months ago, has grown to close to 3,500 members in that time and is my go to place for all the relevant BTC news across the planet. In the group you will often hear Bitcoiners railing against new regulation, and predicting a future where Bitcoin will destroy the current financial system, banks, and even possibly governments. How will it do all this? By truly democratizing money — the Internet of Money would make centralized control, the divide between rich and poor, the protectionist policies of the FED and central banks all things of the past.

Except it hasn’t happened and isn’t likely to in the current environment. Before you start condemning the central banks, Mt Gox, governments and the regulators of the world for killing off Bitcoin before it has had it’s chance, consider that we’ve got a bigger core problem.

What the numbers tell us

Bitcoin has had some meteoric growth in the last few years appearing from nowhere and taking the world by storm. To hear of Bitcoin on the nightly news, or to see the likes of Marc Andreesen of Silicon Valley putting big bucks behind the future of money like this is already an extraordinary achievement. In November of 2013, traders pushed the value of Bitcoin up to its record peak price of $1,135.00, it then plumeted to near one tenth that value, before recovering. Today (July 21st, 2014) the price is hovering at $622.00 still near half it’s peak back at the end of 2013.

Volatility is hurting adoption

Call it a bubble, call it a Ponzi scheme (if you don’t understand it), or call it (as the US Treasury does) a distributed virtual currency, the biggest problem Bitcoin has had in the last two years has been one of volatility. While volatile commodities make for interesting investment plays for the more aggressive investors amongst us, it rarely is a good thing for a currency or a payments network. Herein lies one of the key problems for Bitcoin, to be a true force for disruption, it needs to be used by large groups of people. But most people like their currency and their bank balance to be highly stable — lack of stability is never going to stimulate mainstream adoption.

If you compare BTC versus the stock market, which is normally considered moderately volatile, it is clear that Bitcoin is still highly volatile — that needs to change before we fix the adoption problem. To be fair, though, it isn’t significantly effecting the market for Bitcoin from a trading perspective. In fact, the volatility may have made it more attractive in the past.

Bitcoin Wallets up, Volume down


Chamath Palihapitiya who joined Facebook in 2007 as VP of User Growth, knows a lot about the mechanics of user adoption. In January of this year, Chamath was one of the largest individual owners of Bitcoin globally, and he predicted that growth would exceed 11.5 wallet downloads in 2014. Since the price has stabilized below $500, however, Chamath has revised his projections lower to a still respectable 7.3m wallets.

Chamath Palihapitiya predicted a slow down in Wallet growth this year

Having said that, 7.3 million wallet downloads is not such a bad achievement right? With 7-10 million new users this year, we could conceivably see 100-200 million Bitcoin users in 3-5 years, which would make it a serious alternative economy. The largest bank in the world ICBC reportedly has 150 million customers, so once Bitcoin surpasses ICBC in terms of value stores or account holders — it’s potentially a very big deal.

The problem is, though, that having more users participate in the Bitcoin economy should mean more usage, more volume of trading, more transaction volume — and that is not what is happening today.

Bitcoin trading volume has slowed in recent months (source:

This year Bitcoin trading volume has settled to a level consistent with 2011 volume (See also Bitcoin trading volume stumbles! All time low since 2011!). Transactions per day peaked at just over 100,000 Tx/pday in December 2013, and has since settled back down to a range between 50-70,000 per day.

transactions per day (Source:

At around 3 million users in December, we’re looking at an average of justone transaction per month. With double that number of users expected in Q3 2014, and half the transaction volume, we’re looking at a decrease to less than one transaction every two months per user. That is not a growth economy for payments or commerce, it is respectable volume for trading.

Granted 1 year of recent data is not exactly indicative of future growth, but if Bitcoin is going to be a realistic competitor to either existing value stores (i.e. bank accounts) or to existing currencies, then it needs to get the volume up.

How does it compare with other growth we’re seeing in the financial services space right now?

Annual growth in credit and debit card transactional volume is around the 15-20% mark right now, and that is after 30 years of growth and development. In comparative terms Mastercard and Visa process around 66 million transactions per day (source: Payments Source), and PayPal processes some an estimated 9.3 million transactions per day (source: About PayPal), so Bitcoin has a way to go.

Credit/Charge cards and PayPal are both businesses that have been around for more than a decade, so what about new businesses on the growth curve? Based on this excellent Quora analysis, it appears that Square currently is doing about 70,000 transactions per day in the $20 average transaction range. The fact that Square is doing the same volume as Bitcoin doesn’t necessarily mean much, but Square is sweating the small stuff — not relying on big $$$ trades or market price to keep participants interested.

Mobile payments are obviously a key modality growth measure in today’s world of retail financial services. By that measure, one of the most successful growth stories in recent years has been that of Kenya’s MPESA. If we compare mPesa transactional growth since launch to Bitcoin’s growth we get a very telling story.

Comparison of Bitcoin transactional volume with MPesa volume in Kenya

Amplifying Bitcoin

If we’re going to get this right we clearly need mass adoption by consumers, using their Bitcoins every day. This will definitely solve our transaction volume issue.

If we look at the most successful mobile payments initiatives in the US today, then the best candidates would be the Starbucks mobile app, Venmo and Dwolla P2P apps, and the mobile wallets of Google and ISIS. Bitcoin global transaction volume in USD peaked at US$180 million in June according to, but the problem we’ve got is that it is unlikely that that transaction volume correlates with mobile wallet usage, in fact, we know it doesn’t. If it did we’d see wallet downloads improving transaction volume.

Starbucks and Venmo, however, have both seen considerable mobile payments volume improvement in recent months. During Q1 Venmo (now owned by PayPal) reached the same quarterly volume as Starbucks, and is set for continued growth. It wasn’t that long ago that we had labeled Starbucks as the most successful mobile payments app in the United States.

We don’t have the granularity of data on the transactional side of Bitcoin to know how it compares with the likes of Venmo or Starbucks from the handset specifically, but a recent quote from Venture Capitalist Fred Wilson describes how hoarding is plaguing this sort of mainstream Bitcoin adoption today:

“I also think we need to see real transaction volume happen. Right now, most people who get bitcoin hold it, they don’t transact with it. That’s part of what causes all of the volatility — if there was a very vibrant system where bitcoin was just getting swapped around like crazy, the velocity of the money would cause bitcoin’s price to stabilize and there would be a much more liquid market. I think those are the kinds of things an economist would want to see.”
Coindesk, July 21st, 2014

While we’re trading Bitcoin for capital gains, we’re treating it as a commodity. While we’re doing that, we’re not going to see mass adoption of Bitcoin on the payments side, nor as a day-to-day value store (a replacement for the bank account).

What we need is to get Bitcoin wallets on phones, being used everyday. For that consumers need places to spend their Bitcoin — this is good transaction volume, as opposed to bad transaction volume which curtails adoption growth. The only other way to go is to encourage stable growth as an asset class, so that Bitcoin outperforms the stock market on returns, while being less volatile — given Bitcoin’s nature as a pseudo commodity, that is extremely unlikely. If we encourage Bitcoin as an asset class, then the dreams of supplanting the centralized banking systems of the world dies.

In July Dell computer announced that they would start accepting Bitcoin for purchase of their products. That is a huge announcement for Bitcoin. Unfortunately, these types of announcements are just not coming quickly enough to stimulate the right type of growth for Bitcoin.

Let’s face it — when a mobile wallet in Kenya, or a coffee company out of Seattle has more merchant acceptance than Bitcoin, you know we have an uphill battle for adoption. Regardless of what you think of the Blockchain, or the fantastic decentralized model behind Bitcoin, consumer adoption and frequency of use is the best indicator of the ability of Bitcoin to disrupt either payments or the value store model of the existing banking system. That is the problem we have to fix if we don’t want to relegate Bitcoin to a hedge commodity in the medium term.

If you believe in Bitcoin — you need to start spending it, not holding it for asset gain. If you’re not spending it, you’re killing Bitcoin.

Why Money is Disappearing

It’s hard for many to conceive of a world without little bits of paper that we today denote as currency. In fact, money is so ingrained in society that we’ve come up with hundreds of slang terms around the world to describe the stuff. In the US you might hear the term “Benjamins”, “Dead Presidents” or “Greenbacks”. Can you guess which countries gave birth to “Bucks”, “Clams”, “Loon”, “Dough”, “Shtuka”, “Two Bob” and “Moola” when it comes to describing money?

During the Great Depression in the 1930’s,“Clams” were issued by local merchants in Pismo Beach, California to cope with the collapse of the economy

Money is important, if not central to commerce in society, but when presented with the concept that cash might disappear or that the use of physical currency is in decline, you will get passionate responses from large swathes of the population diametrically opposed to even the thought of such a shift. When a new crypto-currency like Bitcoin emerges you’ll likewise have those that are passionate in their belief that Bitcoin will replace all existing currencies on the planet and totally eliminate the need for a conventional banking system, as opposed to those who think Bitcoin is purely an instrument for geeks and/or criminals who want total cross-border anonymity for their transactions. Despite all of this, the fact that escapes many in this debate is that hard cash is actually a relatively new concept in the modern world.

The recent history of banknotes

The note with the mostzeros in the world is Zimbabwe 100 trillion (100,000,000,000,000) dollars (issued in 2009). The note has 14 zeros printed on both the front and the back

It wasn’t until 1861 that the US government started to print it’s own banknotes, preceded by the First Bank of the United States which issued private currency starting in 1791. Prior to the US, in 1696, that the Bank of Scotland issued the first banknotes for Great Britain — today Queen Elizabeth II, the second longest reigning head of state (behind Thailand’s King Bhumibol Adulyadej), holds the record for the most countries that issue currency carrying her image or likeness. Back in those early days it was actually most common for small communities to start their own banks and for those banks to issue their own currency — sounds suspiciously like Bitcoin if you ask me. Over time centralization of currencies became more efficient for trade and commerce, and thus you also have the emergence of ‘central banks’ who could issue a currency respected across the community.

Prior to the use of banknotes, there were of course coins. Before coins you might imagine that barter was the primary mechanism to enable trade, but there were other forms of currency that existed thousands of years ago that were a good proxy for the notes we carry around in our wallets today. The earliest recorded such currency from 3000 BC was called a “shekel”, which carried the distinction of being both a measure of weight and an early form of currency. Shells were used by many nations in the Americas, Asia and Pacific. The Ancient Greeks, however, were the first to mint actual coins back around 600-650 BC, and by the 1st Century such coins were increasingly the most standard form of monetary value exchange around the world.

More efficient money?

China issued bank notes as early at 120 BC using white-deer skin or
buck skin, hence “bucks”. The first settlers in the western United States also used buck skin to trade with local natives.

Today Bitcoin is emerging as a type of next generation currency, and while classifying Bitcoin as a currency is the most logical characterization for the public at large, it is by design something that has been designed to be more efficient than traditional currency, and at times resembles more closely something like the “shekel” or Gold in terms of mechanics or valuation. The problem money faces today is that it is not particularly efficient for the types of commerce that is emerging.

With the exception of just a handful of countries like Japan, Thailand, and Bangladesh, e-commerce has never really worked based on cash. While Japan has the highest mobile payment penetration in the world, the country has actually seen an increase in the use of hard cash in recent years because of popular “cash on delivery” e-commerce businesses that have grown there. When it comes to most economies in the world, however, suppliers and businesses want to get paid before they ship your goods to you — you can’t imagine Amazon sending out a package to you hoping you’d pony up the cash once it lands on your doorstep. Herein lies the problem, paying with cash over a mobile phone or via the internet doesn’t work — cash is tangible, but not very transmissible, especially in paper form.

As a result of the use of plastic debit cards, mobile payments and the like, cash use peaked in countries like the UK, Australia and the US last decade. Cash today accounts for just 34% of the total value of consumer spendingglobally, and while non-cash payments are highest in the developed world, as mobile payments and mobile bank accounts emerge, the use of hard currency will only decline more rapidly.

At this point you might be thinking “cash will never disappear”, and while the complete disappearance of cash in most modern economies is still unlikely this side of 2025, looking out to 2050 there is not as much certainty. Here is what you should remember if you’re trying to wrap your head around a world without physical money.

The use of paper money is relatively recent in society, it was deployed to make trade and commerce more efficient and to standardize value systems in the countries and communities it existed in. Today’s world is characterized by a global community, one where commerce is now transacted in ways the Greeks, Chinese and early Bankers could never have conceived of — via the Internet.

The Internet of Money or the Money of the Internet?

The emergence of the Internet was the first nail in the coffin of cash, because it would create demand for electronic payment systems that allowed you to pay specifically without the need to be in the same physical location as the merchant or retailer. Plastic cards emerged as the fastest method of retail payments over the web and in-store too, but for larger transactions and trade, debit cards didn’t allow the flexibility or transaction capability required. In fact, bank-to-bank transfers, which should have got significantly easier with the birth of the Internet, became increasingly restricted due to money laundering concerns and later due to terrorist financing controls. The problem is that at a time when trade and commerce were looking for more efficient mechanisms to pay, banks and governments were seeking to make such more traceable and in doing so were adding friction into the trading environment. In a system seeking efficiency, adding friction back into payments and authentication of payments, would lead to a showdown.

Concerns over Money Laundering and Terrorist Financing have made the transmission of money across border more painful than it needs to be

Bitcoin has emerged as a virtually frictionless method of value exchange across international borders. While there is still friction in cashing-in and cashing-out of the Bitcoin economy or marketplace today, Bitcoins have emerged for exactly the same reason paper money emerged back in the 17th and 18th centuries — to standardized a method of exchange and to facilitate commerce more efficiently.

As the geographical barriers to retail commerce are lowered, and businesses seek reach further afield, new and more efficient ways of paying for goods and services are emerging on top of the IP commerce layer. As the mobile phone replaces our plastic cards, the difference between a digital instance of the US dollar and Bitcoins will be arbitrary. The only question will be what benefit does a Bitcoin offer it’s users to US dollars or the Euro? In the short-term volatility of Bitcoin and difficulties in trading the crypto-currency due to uncertainty and lack of regulation is still limiting broader adoption, but that is a hurdle that thousands of people around the world are actively trying to solve. Some have called Bitcoin the “Internet of Money”, but the more correct classification is probably “Money borne of the Internet”.

While plastic cards allow for access to your local bank account at virtually any merchant, the restrictions around establishing a bank account to get that piece of plastic are increasingly erroneous, leading to greater financialexclusion. The restrictions on larger transaction sizes due to bank rules and government regulations also means that friction is forcing markets to find more efficient work arounds. As cash use is used just for a remaining, small percentage of face-to-face transactions, it will be less sticky as a form of monetary exchange generally.

The imperative for electronic payments is extremely high, as is the need for both consumers and merchants to see changes in their bank accounts reflected in real-time when commerce takes place. This is a world where a new agreed value exchange mechanism could emerge that is vastly superior to cash based on arbitrary geographic boundaries — instead the new world of commerce might find a new globally relevant currency, with very low friction of movement.

Paper money is a relatively new invention. It was created to standardize value exchange within the community, and to make trade more efficient. Those same forces have created the need for more efficient forms of payment and more relevant currencies today. If not for those needs then Bitcoin would never have emerged, just as paper money would not have emerged without clear drivers back in the 17th century. Today paper money can still compete, but in an increasingly digital world, it might very well find itself outclassed by new, more efficient methods of payments in the form of mobile phones, lower friction transmission mediums and more relevant global community value exchanges like Bitcoin.

Don’t throw out that leather wallet or your ‘dead presidents’ just yet, but just the same now would be a good time to start figuring out how to pay with your phone at your local Starbucks.

Why Kids don't sign, and banks shouldn't either

In a recent UN/ICAO commissioned survey on the use of signatures in passports, a number of countries including the UK recommended phasing out the long held practice because it was no longer deemed of practical use. More significantly, however, is the emerging trend that has some parents, educators and lawmakers espousing their concern – when asked to sign most kids these days are simply writing their name – the art of the signature may soon be a lost art. A recent report in Gulf News disclosed that this is a global problem with kids in Canada, Tokyo, Hong Kong and elsewhere moving away from written signatures because they live their life through technology, but without the need to sign.

There’s been an outcry of sorts over the last few years at the fact that most schools are no longer teaching our children cursive writing. Many consider the increasingly lost art of cursive writing a necessary life skill, not at least because a good written signature really requires it. As early as 2006, researchers observed a dramatic decline in the use of cursive script. In fact, it was in 2006 that of the 1.5 million students in the United States who completed the SAT exams, 85% of them did not use cursive writing, but printed their essays in what we’d typically call block letters.

Cursive writing itself is an artifact of a bygone era. A time when writing with a quill required keeping the quill on the paper to prevent blotting or the problem of leaving a big drop of ink behind as you lifted the quill. The word cursive derives from the 18th century Italian corsivo literally meaning “running”; i.e. running words. While the Romans are generally first credited with the use of cursive writing, the Italians of the 14th century renaissance made it into a veritable art form.

In the 19th and early 20th century all children were taught cursive script, and left handed school children were even forced to write with their right hand to prevent them from dragging their hand across the still wet ink. Although the ballpoint pen was patented in 1888, it wasn’t technically viable until the invention of so-called “solid ink” much later in 1945. By the 1950s the ballpoint had replaced the quill in most classrooms. Despite this innovation cursive writing remained an artifact in the classroom for almost 40 years after the disappearance of the quill. But is it that signatures are failing because we’re not teaching our kids cursive writing anymore?

The signature as an artifact has been a staple of society for the better part of a millennium, but the signature itself dates back to the year 439 during the rule of the Roman Emperor Valentine III. When it came to signing a contract or important documents like the Magna Carta, or the Bill of Rights, the signature was the unchallenged standard when it came to a unique identifier. Considered unique and difficult to copy, individual signatures were like your legal fingerprint. The obvious question is, can a signature based on a method of identification employed 1600 years ago still be the best method of identification we’ve got?

When this was written, signatures were the most reliable form of identification used

When this was written, signatures were the most reliable form of identification used

Signature required?

One of the reasons students around the world today lack the basic skill of a signature these days is that they rarely have to use one until they enter the workforce. In fact, all of the basic services these guys use today simply don’t require a signature for opening an account – Facebook, Google, iTunes, Snapchat, Instagram, Mobile Phone Accounts, etc. If they have to open a bank account or rent an apartment, they might be required to provide their John Hancock.

But let’s get real.

Signatures aren’t actually an effective form of identification anymore. Have you ever seen someone in the checkout line ahead of you get rejected at the store for a bogus signature? How could the staff tell? A pal of mine, Dave Birch, actually signs all sorts of fake names when he’s asked to sign, but never uses his actual signature – why? He reasons if he finds a transaction where someone has actually used his name on a credit card receipt, then he immediately knows it’s a fake.

It’s hard to believe the entire banking system is held together by something as basic as a signature today. In fact, it isn’t held together very well. The United States is the last remaining country to have not adopted the EMV Chip and PIN standard, and thus still relies on signature at the Point-of-Sale. Which is why despite accounting for just 25% of all card transactions globally, the US has more than half the card fraud for the entire world – yes, that’s more than the rest of the world combined. The signature patently doesn’t work to stop card fraud. So what about for day-to-day bank account operations?

When was the last time you actually had to sign a withdraw slip to get cash at a bank branch? Yet, in my experience 9 out of 10 banks still require a signature card to open a bank account today – why?

Signatures are risky!

The fact is that I can verify someone’s identity through much more reliable methods than using a signature card or signature verification today. Just looking up someone’s profile on LinkedIn or Facebook, their social security number (if you are in the US) combined with an identity document (drivers license/passport) and facial recognition, are vastly superior data points to a signature on a piece of paper. In fact, the amount of data I can bring to bear to verify an identity today means that if a bank is still relying on a paper application form with a signature, they are simply absorbing a much greater level of risk than is necessary. Yes, you read that right. A signature card and a paper application form mean you are absorbing an unacceptable level of risk as a bank.

Clearly the customers of the future are not big fans of a signature – they’re not writing checks (or cheques). They’re not working with banks that use signature cards generally either. Their life is based on a digital persona, and real-time digital access to their phone or bank account is increasingly based on biometrics that are much better fraud prevention measures and identity verification methods than a cursive writing-based signature. Why insist that these kids still sign their college application, mortgage application or bank account opening form in this day an age? It just doesn’t make sense.

If you don’t believe me – sign your next credit card receipt as Mickey Mouse and see if the merchant accepts it…



Oh, and if you detach yourself as a bank from the need to sign an application form? You can deliver revenue via the smart phone, more easily than you can in a bank branch, and that is going to be huge the next few years!!



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