- predictability – ability to predict actions of others and situations which might occur
- vulnerability – giving others the chance to take advantage of vulnerabilities
- value exchange – exchange of values even though there is no full knowledge about the peer
- delayed reciprocity – giving something now with the expectations to be compensated at some future point
- An ordinary cab arrives with a smiling driver. Before you enter the cab you need to trust the driver that he knows the place, has serviced the car properly and will not crash the car while you are in. This quick assessment is nothing simple but humans have developed senses during the evolution which support this interpersonal check.
- The cab arrives – but nobody is in. There is a screen showing a friendly face in an office telling you that he is your driver. The cab is remote controlled in a way that it feels for the driver like being in the car. You can again perform the quick assessment described above based on the reduced amount of information and available senses.
- A self driving car arrives with a smiling man in it. He has been mandated by law to sit in the car to intervene in critical situations. You may be tempted to make the quick assessment as in the first scenario but then you notice that this person has limited chance to intervene and influence the sequence of events in an emergency situation as the available time to react would be to short. In essence you notice that you need to trust the system, its sensors and the algorithms.
- A self driving car arrives – completly empty. That’s a different story – the interpersonal element and the usual base for quick asseementis is completly missing. Maybe you should do a short ride first to see if this is safe and then, once you gain confidence into the car, its sensors and algorithms go for longer trip. With good experience, trust is built.
- The secenarios have all one thing in common – the ‘driver’ has limited skin in the game.
- Remote meetings with specialists who can come up with creative solutions for complex problems are quite the norm in business and personal live today. Finding the right specialist may already be a challenge and arranging a physical meeting may be close to impossible.
- You may have an assigned employee representing the bank as a sales clerk or relationship manager. The relationship manager will talk with you and then key in the data into some engine which finally processes the agreed business. You may build up a personal relationship to your relationship manager. If this is strong, then you will be tempted to follow him if he moves to another bank. If you trust more the brand, its system and processes, then you will stay and engage with a new relationship manager.
- You may also be routed to a customer services desk which is used to deal with requests like the one you have. With each call you get to know another person – building an interpersonal relation is not intended.
- You may also interact through an electronic channel with the system. A hopefully cool user interface guides you through the necessary steps to get things done.
As today’s business challenges span across boundaries within and external so too must leadership. The ever-increasing complexity of today’s world calls for a critical transformation in leadership from managing and protecting boundaries to boundary spanning ( see Never fail to fail, Giving Direction, Dance on the VUCAno) With that it’s business model reflects towards a multipurpose traverse offerings supporting the client’s dynamic behaviors and journeys ( Banking evolution: Service Innovation, Banking Today)
Under the context of digital offering(s) is its simplicity of a single-purpose business model/ offering/ app the wave of the future?
WeChat, or Weixin in Mandarin, is quickly becoming one of the most popular multi-purpose platforms, not just in China, but the world. Released in 2011 by Chinese internet giant Tencent, With nearly 800 million active monthly users, its user base has grown consistently in every single quarter to date. More importantly the point that I would like to focus is it’s actual embodiment of the app.
It’s safe to say that the most ardent of technophiles have at least 100 apps on their smartphone e.g. Facebook Messenger, WhatsApp, Telegram, Skype, Google Hangouts and Duo for instant messaging. Uber, Lyft, Citymapper, Waze, Tripadvisor, AirBnB and Skyscanner for directions/maps. In addition for gastronomy related: Deliveroo, Just Eat, OpenTable, Zomato, Yelp or Urbanspoon. That’s 19 apps to cover three essential functions. WeChat includes capabilities above and more.
WeChat lets users do everything you’d expect it to – instant messaging, sharing life events and chatting to family members. But its feature list extends far beyond custom emojis and profile pictures. WeChat allows you to arrange a catch-up with a friend, pre-order food from a restaurant, book a taxi to the restaurant, get directions on foot, pay for the meal (or split amongst your friends at the time of payment), check movie times and book tickets, and also purchase other items. All without hitting the home button.
The possibilities for brand-to-consumer engagement on WeChat are almost unparalleled anywhere else in the world, and this is almost entirely due to the way the app manifests itself in as many aspects of daily life as possible. By knowing a person’s current location and when they usually have dinner, all in one app, fast-food brands can hyper-accurately target consumers when they’re most inclined to purchase. And by tapping into the app’s data on payments and money transfers, marketers can get a good idea of when, where, how and why users spend their money, before using this to hyper-accurately target their audience when they’re most likely to buy. With such understanding of a client’s behaviour enables to proactively provide financial wealth services be it from suggesting dynamic relevant payment methods to making recommended investments, wealth management and advisory, etc…
The need for banks to traverse beyond its current boundary is imperative to regain expediency with the new paradigms ( see Digital Tur Tur).
Not so long ago we introduced banking capabilities (see “Towards a digital barter economy?”). Then came the pursuit of product offerings from basic to highly exotic types. With globalisation and increasing market competitiveness banking institutions must now drive innovativeness in their operation to gain sustainable competitive advantage. We are now in an era of competing, not only with incumbents but new challengers outside the financial sector, on the basis of services rather than on the basis of physical products as it is hard to distinguish between products of competing brands in a given product category. It is the services offered by the banks that manifest true value. Differentiation in services must be based on the need to have a vision (see “Giving Direction“) … and not ‘just’ innovation but with the sense of purpose.
Service innovation involves intangible resources for a more innovative service(s) that challenges the conventional attribute-based view of services delivery designs. This requires going beyond current restrictions of product innovativeness that involves assimilation of improved service processes by means of designing and redesigning service delivery capabilities. The pervasive influence of information and communication technology has revolutionised the means of social interaction which will impact how banks will integrate in the client’s ecosystem.
As services become more important for society and customer’s demand more complex and personalized solutions the need to understand and build up innovative processes is vital. Globalisation, information on demand, and ubiquitous communications are pushing innovative services to become more open, flexible, integrated, complex, multi-actor, and networked-oriented).
There are various models of service innovation:
- “4Ps model by Bessant and Todd (2011)” – 4Ps represents product innovation, process innovation, position innovation, and paradigm innovation. All four aspects formulated for “innovation space.”
- “Six Dimensional Service Innovation Model by den Hertog, van der Aa and de Jing (2010)” – this defines services innovation as a new service experience or service solution that consist of one of the following six dimensions: new service concept, new customer interaction, new value system, new revenue model, new delivery system and technological.
Can banks use these models as a baseline to evolve future service innovation models?
Nevertheless we need to work towards sustainability competitive advantage and embracing service innovation as an integral part of the bank’s strategy in order to move continuously towards being customer-centric and services-centric. Although there will still be a wave of financial product innovation based on programmable money we should not be limited to product and/or related process innovations but we must emphasise on business model innovation, market innovation, and most importantly paradigmatic innovations.
Let’s assume for a moment around year 1860 you are horse rider working for the Pony Express. You and your colleagues are doing, on a daily basis, a fantastic job delivering messages between the Atlantic and Pacific coasts ( it takes approximately 10 days). During a ride you start to see placement of wires on poles. You try to understand and to explain to your partner of this. What would you say? “ they are building a continental fence high up in the air” or at some point you understand some aspects of what this new thing does. At the moment of realisation would you still be convinced that only people on horses working for solid companies can reliably deliver messages over such a long distance. Eventually working in this paradigm will no longer be valid as you notice the decrease in demand for horses and riders.
Now let’s switch back to crypto currencies with Bitcoin as the prominent example and have a look at some of the arguments discussed on various media these days. It is very difficult to explain cryptocurrencies, such as Bitcoin, with a simple comparison to something else.
“Bitcoin has no value” – this is somehow the wrong discussion. Most currencies don’t have one – fiat currencies have declared value by authorities and maintain it as long as people trust the system. The latin word ‘fiat’ simply means “it shall be’ – an authority declares something to be a currency. Bitcoin was created in the last financial crisis. The genesis block contains the message “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks”. It is an attempt to create a decentral form of money where no central authorities have an influence. So the key question is not the ‘value’ – it is about how trust is built. What’s better – the declaration of an authority or the community?
“Bitcoin is a currency” – sounds reasonable as we all deal with one or more currencies each day and as Bitcoin started to become an aspect in our daily life. But what is a currency? It turns out that currency definitions like the one on Investopedia are not so helpful.
“Currency is a generally accepted form of money, including coins and paper notes, which is issued by a government and circulated within an economy. Used as a medium of exchange for goods and services, currency is the basis for trade. ”
If this definition is true, then Bitcoin is not a currency as it is not issued by a governmental authority. Also, the definition of money is linked to a government. Hence Bitcoin is also not money, if the definitions are considered to be valid.
“Bitcoin is not a medium of exchange” – as transaction costs and volatility are high and making small transactions unattractive to mine. Although Bitcoin is currently not an option for small amounts but could well be used for large ones.
“Bitcoin is made of thin air” – on the basis that there is no underlying physical resource. But what does this mean? Bitcoin is itself a resource on a strict mathematical base. It is not created out of thin air – its creation is the result of a well-defined and completely transparent algorithm which we all can verify and decide to trust or not to trust. Comparing this to ‘fiat currencies’ do you know how ‘fiat currencies’ are created? Do you know who decides to increase the amount of currency or to adjust the value of one against another currency? Is this done in a transparent way?
“Bitcoin is fraud” – what is the basis and evidence of such statement?. Looking at the original whitepaper of Satoshi Nakamoto this is simply wrong. Sure, there are fraudulent use cases, but this is also the case with all other currencies or assets. It turns out that Bitcoin is not really a good medium to be used e.g. in ransomware. All transactions in Bitcoin are publicly observable – we do not know the individual owning an address but that does not hinder to monitor target addresses and intervene at exchanges when they are used. In other words – using Bitcoin always leaves traces while using e.g. cash does not.
“Bitcoin needs regulation” – sounds also great as rules are essential to create trust. A system which is weak needs a lot of surrounding rules and interventions while there are systems which contain the rules transparently in their core. Bitcoin itself is regulated by the maths embedded in the system itself but not by the traditional financial services regulators or national banks. What authorities can and should do, is to think about the exchange of Bitcoin against the fiat currency they oversee and the implications.
“Bitcoin is the mother of pyramids” – sounds also somehow true as the ones who bought Bitcoins early now profit from those who come late. But what is a Pyramid Scheme?
“A pyramid scheme (commonly known as pyramid scams) is a business model that recruits members via a promise of payments or services for enrolling others into the scheme, rather than supplying investments or sale of products or services. As recruiting multiplies, recruiting becomes quickly impossible, and most members are unable to profit; as such, pyramid schemes are unsustainable and often illegal.”
At least I’m not aware somebody recruits members in a multiplier scheme. And anybody can decide at any time to get buy or sell Bitcoins. Hence the comparison seems also to be misleading.
“Bitcoin is a bubble” – looking at the price evolution is 2017 suggests that this could be a bubble. But what is a bubble?
“A bubble is an economic cycle characterized by rapid escalation of asset prices followed by a contraction. It is created by a surge in asset prices unwarranted by the fundamentals of the asset and driven by exuberant market behavior. When no more investors are willing to buy at the elevated price, a massive selloff occurs, causing the bubble to deflate.”
Well, it is most likely some sort of a bubble – there will be price corrections and at some point in time Bitcoins will be super-seeded by a technology eliminating its constraints in terms of fairness, transaction rate and energy consumption.
“Bitcoin uses enormous amounts of energy” – this seems to be one of the concerns people love to make comparisons and also promote the idea that more transactions results in more energy consumption. Yes, it uses a lot of energy but this energy is what makes the network safe in the current proof of work- mining. An attacker would need to invest a substantial amount of these resources to destabilize the bitcoin network. The amount of energy used does however not correlate with the number transactions processed.
“Bitcoin is the new gold” – this seems to sound right when thinking about mining Bitcoins. There are the miners who produce gold and the limited supply makes gold valuable. The amount of natural gold on the planet is limited like the total amount of Bitcoins. But astro mining will change this for gold not too far in the future – experts talk about 20 years from now. Bitcoin’s mathematical foundation stays.
These points are properly summed up in Steve Wozniak’s statement “Bitcoin is mathematical. I am a mathematician. There are only 21 million. It is more legitimate than other systems”.
The following is a pretty good description:
- It says that it is a limited resource currently slowly increasing day by day peaking at 21 million. So far, all resources which are limited and of interest, increased in value. While Bitcoin was rather unknown even 2 years ago it is now a hot topic in all media with people making harsh statements primarily defending their own interests.
- Steve also calls it a system – there is neither a government nor a company with management nor an individual running Bitcoin. The system is very cleverly built – it is an amalgamation of many disciplines and was so far self-balancing gravitating towards a stable state where all the participants jointly benefit.
Maybe we add the following characteristics
- The system is transparent – everybody can observe all transactions.
- The system is democratic – everybody can use it or become a miner.
- The system is self-balancing – no government or company decides its direction
- The system is energy inefficient – a result of the proof of work mining approach
- The system is not completely fair – miners can prefer juicy transactions
- The system is open – all technology is freely available
A hyperconnected digital economy needs inherently digital media of exchange. Bitcoin is most likely the first step into such a direction. It’s ten years history demonstrates that such a system is possible and triggered a whole new set of echnology innovations. Crypto currencies represent a fundamental upgrade to the economic systems of the world. Once they have matured and are integrated into the mesh economy, the world will look very, very different.
The term is not at all a new trend or technology. Previously known as pervasive computing where due to technological advancement and cost feasibility the trend of embedding computational capabilities into everyday objects. This makes them effective in communication as they are network interconnected and performing activities of the end users without a centralised system.
Ubiquitous computing integrates via different devices, industries, environments, applications (e.g. wearable devices, appliances, fleet management, sensors). The goal of it is to make devices “smart” in the form of creating a sensor network capable of collecting, processing and sending data via the context and activity that it is under.
We had seen first phases of such capability involving wireless communication and networking technologies, mobile devices, and RFID tags. With the exponential advancement in internet capabilities, usage of voice recognition and artificial intelligence, the growth and adoption of embedding ubiquitous computing significantly increases now often associated and known to be the internet of things (IOT)
Gartner predicts approximately 8 billion connected objects to be use by the end of 2017 and it appears to be growing. In order to cope with the growth of IOT a heavy incorporation of artificial intelligence (AI) fueled autonomy will be required. An AI-driven era of IOT becomes the key building block to herald an increasingly seamless experience and hyperconnectivity as users and their digital counterparts concurrently transpose from one medium/device to another, between multiple environments, the physical and digital ecosystem.
The word bank immediately depicts the picture of queuing in branches, limited quality products, and legacy processes ( e.g. time to process transfer or payments, etc…). The list goes on and on whether it is overdraft charges, processing/ service fees, overseas call centre. Although in the past, prior to the digital revolution, communication and processing were performed physically and was an important valued service appreciated by its consumers (Change is inevitable, Importance of a brand’s digital behaviour). However in the digital age, this will change with the introduction of financial capabilities not through new capabilities from existing incumbent banks but by new players outside the financial sector.
What will these players offer? Will they offer radically different products, new approach(s) to customer service and radically different ways of integrating to the customer’s ecosystem offering customers genuine and value added financial services? Or will these new ventures, like many of our existing banks, simply pay lip-service to such ideas?
What would we expect these new ventures to provide? To say the least the following:
- Fewer but relevant and value-based products base on the customer’s preferences. Keep it simple, make it fun, empower the customer.
- Financial services anywhere anytime (Omni-digital). Ubiquitous and available when we need any forms of financial services through the customer’s ecosystem. Services that interstate with their connected life.
- Personalized services and recognition. Knowing the customer personally. Listening to the customer
- QR code a standard for payments where payments happens instantly with limited to no infrastructure required
- Work the way customers work. Be where they are, be there all hours, respond now.
- Be the kind of financial services that I want to work with: be involved.
- Rate and fee sensitive/ free
- Be the overall financial caretaker. True advisory relationship.
What are your expected capabilities?
Barter is a system, used since many centuries ago, of exchange where goods or services are directly exchanged for other goods or services without using a medium of exchange, such as money.<
Thus a barter economy is one where money does not exist or has ceased to be functional. It means consumers have to gain goods or services through exchange. Limitations introduced are:
- Difficulty to produce or find the demand of specialised goods only wanted by a proportion of the population
- Indivisibility of some goods/services
- Seasonal; perishable
- Subjective means to judge how much good and services actually are
Then came the development of using commodity money whose value comes from a commodity of which it is made (e.g. cigarettes, gasoline, precious metal, etc). The system of commodity money eventually evolved into a system of representative money as gold/silver merchants or banks would issue receipts to their depositors – redeemable for the commodity money deposited. Eventually these receipts became generally accepted as a means of payment and were used as money. To date most countries adopted fiat currencies that were initially fixed to the U.S. dollar as it was fixed to gold. However in 1971, the U.S. government suspended the client convertibility of the U.S. dollar to gold and many countries have thus de-pegged their currencies from the U.S. dollar. In our current state most of the world’s currencies became unbacked by anything except the government’s fiat or legal tender and the ability to convert the money into goods via payment.
Can the use of fiat currencies continue to sustain in the forthcoming digital ecosystems? Would money evolve to become cryotofiatcurrencies? There is the notion of “private money” set out by the noted Maltese “lateral thinker” Dr Edward de Bono which he argues that companies could raise money just as governments now do – by creating it from thin air. The idea of private currency was treated as a claim on products or services producers by the issuer. An example is company x can issue “ Company x currency” that would be redeemable for its products and services but also tradable for other companies’ currency or for other assets in a liquid market. According to Dr de Bono, to make such a scheme work, the company needs to learn to manage the supply of money to ensure that the monetary base and its capacity to deliver are matched and that inflation does not destroy the value of their creations.
This will introduce a new financial market where companies instead of issuing equities, it issues money that is redeemable against future services. In the case of startups, this money would trade at significant discount to take into consideration the risks inherent in the venture. But once it passes this state, the value of the money will rise provided products/services are available and more importantly used and preferred by consumers. With potential tens of millions of such currencies in circulation either being traded on futures, options, foreign exchange markets this leads to the question of usability and extremely complex transactions that people can not comprehend. The notion is that an individual’s “digital me” will be conducting these transactions with other digital representation of the physical individuals.
“Digital me” (see Be your digital self …) will be entirely capable of handling complex transactions and/or negotiations with other such as matching demands and supplies of financial assets, determine prices, or make settlements. Communications will be in real time and activities take place instantenously.
Will digital tokens be the form of “private money” described above to be the defacto in the marketplace? There will not be any centralisation to manage new forms of money. Tokens won’t only be issued by companies and tokens that implement on the values of communities will become prominent in the transactional space.
“Every day, in every way, the future of money looks very much more like its past” – Dave Birch
- “Bitcoin isn’t the future of money, but tokens might well be” (http://blog.dgwbirch.com/?p=199)