The bank will change from being the place that looks after your money to being the place that looks after you identity.
The nice people at the Financial Times invited me along to take part in their first “Camp Alphaville” event in London. I took part in a panel discussion with David Galbraith (a co-founder of Yelp), Jamie Macintosh (Director of the Institute for Security and Resilience at UCL), Sean Park (Anthemis) and the Assistant Governor of the Reserve Bank of Australia, Guy Debelle. The ostensible subject of the discussion was whether the conventional bank model is broken or not, and so I made some notes on the interaction between changes in technology and post-crisis changes in financial services and tried to draw a few conclusions.
How I did this was to build on some work that I’ve been doing recently one of our banking clients looking at the technological impact on the different functions within banking. For this I’d used a fairly standard model of banking in the economy, one that divides banking into a number of economic functions and makes the obvious and long-standing observation that while the economy needs these functions to be performed it doesn’t necessarily need banks. Therefore the assumption is that the institutional arrangements around these functions will change but that the functions themselves will not. This seems reasonable to me. My key observation was going to be that post-crisis the assumption that some of these core functions such as what economists call the “transfer” functions (savings and loans) and (in particular) the SME lending areas were surrounded by an insurmountable regulatory moat that rendered the banks impervious to competition. However this has turned out not to be the case and technology has introduced new players such as Zopa, Funding Circle and Wonga.
Therefore it seems to me that one way to look at the changing role of the bank is to see shifting from an organising or directing (or one might even say controlling) role to more of a coordinating role reinforcing what economists call the “incentive functions” around banking, the functions that enable transactions to take place. I imagine I’m a fairly typical middle-class want-to-be saver in the UK market and I already have more money in my Zopa account than I do in my ISA. I can see that in the future my bank might find it more useful and convenient and a means of delivering a better service to me to provide access to my Zopa and my Funding Circle accounts through my banking services and to facilitate transactions between these different kinds of accounts.
If this is even vaguely true then one of the key central coordinating roles of the bank will be to manage the know-your-customer (KYC) and related customer-due-diligence (CDD) issues and to federate identity in a well-defined way between all of the function providers. I tried to sum up this point of view using a conference soundbite that actually got retweeted fairly frequently, not that that necessarily means that I was right, and said that the bank might shift from being a place where you store your money to being a place where you store your identity. This is the paradigm shift that I refer to in title and it reinforces the view that the banking sector as a whole ought to be developing a convincing narrative around identity before it loses even that co-ordinating role.
Anyway, as it happened, we never really got round to talking much about this sort of thing, instead focusing on prostitution and broccoli, because we got a bid side-tracked around cash.
Speaking at the Financial Times’s Camp Alphaville event, a panel of experts said empirical statistics show that the majority of cash in circulation in places like the UK goes towards funding prostitution, drugs, and tax evasion.
But that’s the fun of live discussion. Thanks again to Izabella Kaminska at the FT for putting together such a terrific panel for the discussion. I learned a lot.