And now we welcome the new year.
Full of things that have never been.
Rainer Maria Rilke
And now we welcome the new year.
Full of things that have never been.
Rainer Maria Rilke
2018 will bring …
2017 was an interesting year where many developments started to get real traction. Just think about blockchain, bitcoin and artificial intellgence.
2018 will be even more interesting and substantially more challenging. A few predictions for 2018 are as follows:
There will be three core changes for financial services:
All three aspects levitates a shift towards a distributed decentralized financial system. This affects the core and challenges legacy status quo and its existence in the future.
In addition fueled by the increasing tokenization and availability of blockchain based systems there will be a shift towards
There will be no other options for incumbents to integrate into the evolving mesh than to provide API’s to access information and services and to start to rely on others to provide crucial information. Self contained and closed financial services companies as well as local solutions will increasingly face headwinds.
Last but not least – user interfaces will become much more natural and transparent. The users will be amplified with new sense and access to information supported by intelligent agents.
Regulators will start to come up to speed with the changes. They will find ways to agree with business changes but also ethical standards across borders acknowledging the global nature of digital eco systems. A big challenge will be on the very old tax systems which are not ready yet for the shaping economy.
These changes are fundamental – there is a ongoing paradigm change where inherent distributed digital approaches start to outperform the automated legacy processes. There are two big dangers out there
Many of the current developments seem to turn time back and bring up systems again which were used in the past but difficult to apply as physical distance was a limiting factor. Digital changes this – the world becomes some sort of a global village. Have a look at Yap, The Island Of Stone Money – the first productive blockchain system.
In the previous post we looked at Getting in and out of the box at will …. Thinking and acting outside the box is not easy at all.
The post Three Things You Need To Know About The Brain To Build Great Teams by Everett Harper shows some reasons for this based on Ellen Leanse book, The Happiness Hack. We all want to be happy. Our brain experiences two forms of happiness:
The post states that we have been hacked and are now flooded with hedonistic fast reward happiness. We must break free when we go out to explore the boundaries of our box to finally start thinking and acting outside of it. Once we manage to leave the box this triggers new insights causing ‘eudiamonic’ happiness but also fear.
Fear is the natural response of the brain to new experiences. The brains main purpose is not to think but to keep us safe. Keeping us safe works best by following routines and patterns. So the safe place is in the box where we follow what used to work. To get outside and break with routines and habits requires explicit action, it’s hard.
And finally once you have left the box it will be hard to convince others to move. They comfortably sit in the box. The perceived good place is in the box, talking about better alternatives is perceived as negative. But routine tends to be boring – a convincing and exciting vision may help to get things going.
People often say that execution makes the difference. Maybe it is the decision to make the first step ….
Asking questions is a way of getting in and out of your box at will and to develop new concepts, thoughts and ideas. Asking yourself (and others) many questions every time is a form of gym to workout your brain. Martin Gaedt explores this in “Rock your ideas” (available in German only). Look around and start to challenge yourself and others – rock your ideas!
How will Artificial Intelligence affect crime, war, justice, jobs, society and our very sense of being human? Max Tegmark provides a fascinating perspective into different forms of life, its evolution and physical limits in Life 3.0. The book defines basic terms like intelligence and busts common myths. Max raises many questions, provides answers and stresses the importance of having accepted ethical standards in the rise of AI.
Can humans overcome death? Should they? Homo Deus by Yuval Noah Harari looks into a world where more people die from eating too much then from having nothing to eat and where more people commit suicide then there are victims of soldiers, terrorists and criminals together.
Do you believe what you can see? Can you only see what you believe? The Internet of Us: Knowing More and Understanding Less in the Age of Big Data by Michael P. Lynch explores this paradox.
What is money? What is currency? What if companies issue their own money? Before Babylon, Beyond Bitcoin: From Money that We Understand to Money that Understands Us by David Birch s a fascinating book exploring how technology is changing money.
Do you know what work is? Do you work in the office or are you just busy playing roles without producing value? Lars Vollmer provides answers in his book Zurück an die Arbeit: Wie aus Business-Theatern wieder echte Unternehmen werden. The book is available in German only.
What is important? What is true? Is it important, that it is true? Gunter Dueck explores these questions in his book Flachsinn: Ich habe Hirn, ich will hier raus. The book is available in German only. How can one escape from the growing shallowness? Maybe by listening to these books and by challenging yourself …
The publications above made me think … What books made you think? How have they influence “your box”?
A good time to “workout” our brain and reflect on “our box” during the holiday season.
I recently read Don’t Just Think Outside The Box — Go In And Out Of It At Will by Bruce Kasanoff. The post was about Eric Lee, a specification writer who started to successfully paint on glass motivated by his wife.
Do you know what and where your box is? Do you know its boundaries? This is actually a very interesting and also challenging question. Do you know the boxes of the people you interact with or the boxes of team members at work?
Thinking and acting outside the box and experiencing the world from different perspectives with fresh eyes is increasingly important in our fast changing time. Start by thinking about your box(s) as you can only step outside the box if you understand the boundaries, the paradigms and habits which make the box your box.
“Thinking outside of the box allows you to get rewards outside of your reach.”
― Matshona Dhliwayo
Before we explain what is self sovereign digital identity, let us first define identity, then elaborate on digital identity which inherently leads to the final form of digital identity management where each user controls their own digital identity.
But how do we proof our identity when interacting with others? Lets look at an example:
You interact with a person who claims to be John Smith and wants to do some transactions with you. John gives you his passport (or a in some countries his driver’s license) as a proof of his identity claim. You attest John’s claim by looking at the passport, determining whether that it is authentic and then comparing attributes captured in the passport with the person in front of you.
This process includes the following concepts:
You may now create a record in your system with a customer identifier, a copy of the passport and additional attributes such as address, date of birth by further verification either through utility bills or other formalized evidences. This record is a digital identity and represents relevant aspects of the social identity and is now the basis for your business interactions with John.
This may all sound simple and rather straight forward, but
Juridical persons and things can also have a digital identity – however in this post, we will continue to only focus on natural persons and look at ways such digital identities can be managed.
Digital Identity Management started with centrally managed approaches. The authority, of such approach, that manages the digital identity data becomes the guardian and qualifies the digital identities. As networks evolved, federated approaches were adopted where multiple authorities jointly manage digital identities. User-centric identity is expanding where a user has more control over his digital identity and decides whether to share an identity from one service to another. Such sharing capability is based on standards like OpenID (2005), OpenID 2.0 (2006), OpenID Connect (2014), OAuth (2010), and FIDO (2013). It’s important to note that all these approaches are centralised but the user has more influence as to how the information is shared.
The concept behind self-sovereign digital identity is to give the user full control over his/her digital identity. It is a distributed identity management approach where a person creates a unique identifier for their digital identity, places claims and asks others in the network to perform attestation. Claims and attestations can be secured using cryptography with the public and private keys of the involved parties.
The user now has an attribute with a digitally secured attestation and with proof of a verified authority claim(s). Over time network of users builds up, where identities are maintained and trusted through attestation of proofs given by others in the network. Attestation authorities can be official authorities, organizations and other users. The quality of an identity in such a system depends on the quality of the involved authorities. Ideally this approach will introduce a single user-managed digital identity which can be used in the network when required and becomes the core of the genuine digital self (please see Be your digital self)
Christopher Allen has defined ten principles to ensure the user control that’s at the heart of self-sovereign identity
It is important that the private keys need to be well protected as they grant full control of the digital identity.
So far, this post discusses the creation of a digital identity. In a future post we will look at how do we bridge between the real and the digital world. How can a system verify the user is who they claim to be?
As the world becomes hyperconnected (please see “No ‘OFF’ Switch“), digital identity and security will continuously gain importance. As there will be, in the foreseeable future, no worldwide authority to manage digital identities, the world will converge towards a self-sovereign identity system where users own their data and various actors perform attestation in a mutual way. The system, in its nature, follows paradigms of earlier times where trust was the result of a social network. The introduction of Digital changes the proximity requirements allowing applicability of such system on a global scale.
Be aware of signs of Mr. Tur Tur
Let me begin with a German children’s novel written by Michael Ende. Lummerland is the home to Jim Button and Luke the engine driver. On one of their adventures Luke and Jim gain a new friend, the giant Mr. Tur Tur. He is an apparent giant and only appears giant in size from far away but is normal when being close.
The apparent giant is of course an allegory – one that often comes to my mind when having discussions or reading about digital transformation. Many of the declared digitization strategies seem like Mr. Tur Tur in nature. The way things are presented and promoted as part of digital transformation initiatives seem impressive from a distance – labs established, digital officers nominated, technology declared to be multi speed, problems to be solved via agile and innovation formalized. But upon looking closer, not so much has really changed.
Digitization is about rethinking value propositions from the core based on digital paradigms with the clients in focus. The generated revenues reflect the result of excellent value propositions. These value propositions must fit not just into any but into the client’s networked world. Digitisation necessitates the redefinition of the core value propositions and transformation of the business model. A high degree of automation and digital assets are qualities of such a model, but a high automation of processes or the replacement of paper with web forms do not imply successful digitisation.
Many value propositions will become ubiquitous as they happen behind the scenes transparently integrated to create the outcomes desired by the client. This will happen though the integration of interfaces to services into user journeys or skills into client’s personal smart assistants. Highly scalable and continuously available interfaces, also known as, APIs are key building blocks to enabling these impending capabilities.
To brace the digitisation journey, a company must encompass all dimensions of skills, organization and technology (see Next stop – FinTechGiants ?). To date only a few incumbent companies have approached the challenge and adopted its fundamental way. Rule of thumb indicates that incomes erode by 50% while a dominating player emerges during the digital transformation of an industry. The question for digital laggards becomes how long they can sustain against the trend in the market – trying to catch up does not work. Agility and scalability are imperative and key to survive in the digital world – qualities that must be regained or even re-learned by many organizations.
Look out and be aware of signs of Mr. Tur Tur in your environment. Digitisation requires fundamental changes and cannot be achieved incrementally – underestimating them or creating a perception through marketing campaigns will impede and be detrimental to your business.
Next stop – the collaboration and integration of FinTech and Tech Giants provisioning of classical banking services to their large user base?
FinTech in its broadest definition stands for technologies used and applied in the financial services sector. Progressively, FinTech has started to represent technologies that disrupts traditional financial services. There is a lot of debate about Fintech diminishing typically based on success criteria coming from incumbent companies. Let’s take an unfamiliar perspective and look at companies from a structural context. All companies can only choose to change in limited dimensions when adapting to the environment or when deciding to shape the future. Ultimately it is the users who decide if such changes are successful or even disruptive when they start to massively consume new services or products in preference over others.
Each company has three core dimensions available to implement change:
The first dimension is skill(s) available to the company. The applied skills, not knowledge, are valued and becomes the decisive factor. Knowledge is increasingly easy to access while skills are hard and time consuming to build up. An example, chess – lots of people have an excellent knowledge about chess and its rules but only a few can play it exceptionally well. Gaining expert level skills requires time and practice. Many things will go wrong on the journey to mastership. The ambition and journey to become a master requires passion, persistence and an environment which allows to practice, fail and learn. These are essential to make progress.
The second dimension is the organization a company has composed. It defines how the individuals work together and apply their specific skills as a team. Many will immediately think about titles, positions and careers in a hierarchical structure. Within each organization there is not just one but three structures:
Unfortunately, there is no choice and it exist in every company. The challenge of each company is to balance them in a clever way to create the maximal value for the clients, shareholders, employees and the society. Most companies focus on the formal structure, the hierarchy of power a paradigm left over from the industrial age. Employees compete in the company to make career and gain position power over other employees while the true competition of the company happens at the boundary where the interaction with the environment takes place. The value creation structure, where the income, but more importantly trust and reputation, built up for the company is not well understood. The highly dynamic informal structure where influence takes place, is often underestimated or even ignored. The company’s culture is a result of the experiences the employees define in these structures.
The third dimension is technology – the available technology was always a decisive factor throughout human history. Now it has become essential, as the technical progress has exponentially increased. Today the need to unlearn outdated practices and learn new ways is challenging the workforce, especially the formal structure. The technology progress demands paradigm changes for things which worked well in the past leads to the opposite effect tomorrow.
The Tech Force
Now let’s revisit the term FinTech. It is an amalgamation of Financial Services and Technology. Financial Services companies have always used technology to improve service efficiency and convenience and will continue to do so. But many incumbents have the problem that they cannot focus on technology as a differentiator. They need to manage a landscape of accumulated technical organizations as they are not used to replacement ng the technology base regularly. The heterogeneous landscape binds a lot of resources and increases complication in an already complex business. FinTech companies typically look at a few well selected value propositions and then seek for solutions using the best available technology. They may not yet feel competitive from a career and salary perspective, but offer fascinating challenges, the possibility to become a master in modern technology and to have impact in the industry. This makes them attractive for talents creating highly skilled teams and high degree of automation using modern infrastructure enabling an efficient and agile work style.
The is a significant difference between incumbents and Fintech companies in technology- the biggest difference being the organizational dimension. Large incumbent organizations with a focus on complex formal and hierarchical structures were ideal for large labor-intensive projects which required the coordination and top-down management of big teams. The complicated landscapes forces incumbents towards centralization aiming for scale effects to achieve efficiency gains. But the future is likely to follow the structure of the internet – it is distributed, technology driven and an interconnected mesh of services. Building and running such services can be done by small teams which efficiently combine the skills to reach a shared vision. A network of smaller loosely coupled but interconnected units, each producing a specific value, fits better in such an environment than big, monolithic and complicated organizations. Such a network of self-contained units is also more flexible to adapt to the environment, to deal with complexity and to survive changes where some of its units may lose value and disappear.
Many of today’s highest valued companies – the so-called tech giants – have assumed an organization which leverages the combined power of the formal, informal and value structure by shifting focus to client value creation and offering space to cultivate the informal structure. These companies may lack the skills of financial services companies now – but they can build on a modern technology base, an extremely high degree of automation and a dynamic and empowered organizational culture. These companies also have immediate access to a vast number of users which may become clients of new service offerings.
The argument, that these companies do not want to become banks, is misleading. These companies have their customer in focus and will do what helps them to achieve their goals. They will not become banks in the classical sense but are integrating and offering financial services. When financial services are required by their customers they have or will apply for a banking license and its services are regulated like an incumbent bank. Their core focus is client value reach and each service are integrated and offerings are immediately widely available. The broad valued offerings and usage results in accumulation of valuable data insights which can be directly using to evolve their business – an example considering a platform company running shops and logistics for clients’ companies. It has deep insights and can grant credits in a much leaner and efficient way. It can choose the most promising client companies and leave the others to the wider market. If the client company grows, it benefits participating in the success of the shop and its logistics.
Financial services incumbents will need to perform a significant step change in more than one dimension to adapt to the new normal. A difficult transformation for status quo environments of those who currently have the power and are the ones who fear to lose most. An alternative to consider is the collaboration and integration of FinTech and Tech Giants provisioning of classical banking services to their large user base. Clients may be used to attaining certain services from companies today – but this can change very fast at any moment.