Filed Under: Money

Nordics, new technology and neo-banks

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The wonderful people from FinansNorge invited me to Oslo to give at talk at their FutureBank 2018 event. It was a very enjoyable day out at a bustling and very well-attended series of discussions about the impact on new technology of financial services.

I was there to talk specifically about the future of money and since the whole token and ICO space is a focus of great interest, I tried to explain why I thought that there may be good reasons for thinking that a regulated token world would be dynamic and beneficial. I don’t mean the EMV tokens that we are used to dealing with but the tokens built on top of cryptocurrencies. I focused on tokens rather than the underlying cryptocurrencies because tokens link to real-world assets and I am sceptical about the ability of cryptocurrencies themselves to become mass-market stores of value. For our clients, this is an area worth experimenting with. While the technology of tokens implemented using smart contracts on a blockchain of one form or another may have issues yet to be resolved (around scale, for example), the concept works well enough to be of interest for prototypes and pilots. In the long term, I think tokens means multiple “smart” monies that embody different values and might even mean money that won’t allow you to use it unless you are upholding its values!

In the afternoon, my colleague Dan Penn and I strolled over to the session on “neo-banking” because we are interested in the varying strategies of both bank and non-bank challengers. I have to report that the session on Neo-banking was absolutely rammed. There was barely standing room. I understand why: when genuine competition is coming, banks have to work hard to establish a strategy. It used to be really easy responding to competitors who were banks.If they decided to give away a record token for student account then you could counter with a Railcard. If they offered a 90% mortgage then you could offer a 95% mortgage. If they offered a credit card with cashback in British Airways miles then you could offer a credit card with cashback in Virgin miles. Competing with other banks might have been difficult at times because of capital requirements or shareholder demands or margins on transactions but at least you understood how that competition worked.
 
It’s all to do with theory of mind: you are a bank so you have a mental model of how banks think and you can imagine your competitor thinking within that framework. But how do you compete with non-banks and neo-banks? How do you construct a strategy for competition with people who do not share your model of the world and have no interest in your mechanisms for creating value because they create value in entirely different ways? How do you work out, for example, your transaction fee strategy when you are competing with people who don’t care about fees because their business model is founded on data? This is what much of the water cooler talk was about.

This highly competitive world that our clients are moving into is challenging, and not because of the challengers, if you see what I mean. Open banking means new competitors but, more importantly, it means new kinds of competition. There were a number of great discussions about this both on and off stage, but a super high-level summary is that competition from new players who know how to manage and manipulate large amounts of data is worrying for the incumbents.

Pascal Bouvier from Santander Innoventures forced to me to think, as always, but I remain unconvinced by his claim that cryptocurrencies are to banking what the printing press was to the Catholic church! Nevertheless, I enjoyed engaging with informed delegates on PSD2, in-app payments (very successful in the Nordics, whereas in the UK PingIt and Paym remain of niche interest) and other topics at the intersection of banking, technology and regulation. Many thanks to FinansNorge for inviting us along to this excellent event.

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