Chris Skinner is Chair of the European networking forum: the Financial Services Club. He is best known as an independent commentator on Fintech through his blog, and as author of the best selling book Digital Bank and its new sequel ValueWeb.
I was at a large bank’s wealth management conference recently, where the CEO was being quizzed about various areas including a lot about technology and FinTech. He made several statements that I noted with interest:
“Roboadvisory services improves our speed-to-market and human productivity, but does not replace humans. In particular, I can see that artificial intelligence (AI) and machine learning makes it far easier for us to comply with and implement regulations and deal with regulatory change in the back office.”
“I don’t believe that AI and FinTech will replace human advisors. It will just make them more effective and efficient. In fact, the real gamechanger will be what goes on behind the human advisor, behind the scenes, in the back office.”
“I don’t believe in bitcoin or other new cryptocurrencies, but I do believe that existing fiat currencies will move to be fiat digital currencies over time. I don’t see a new cryptocurrency taking over.”
“Client data needs to remain confidential and should only be exposed to those who need to know. The issue is that regulatory change over the years has made those who claim they need to know to rise exponentially. That is an issue that technology can help us with and to not only reduce the number of those who need to know, but also record every access to client data which allows us to capture any access that was not authorised.”
Now I don’t disagree with the comments above … except that it made me think that they were slightly narrowly focused upon making faster horses (see my earlier blog about this).
The issue is that most banks and bankers are product-focused. They’ve grown up in a culture of pushing products through channels, and it’s hard to break out of that thinking. Now this particular bank is quite forward thinking about technology, and is an early adopter of things like blockchain and AI. Even then, the idea that most of the new tech is focused upon back office improvements in support of human front-end is narrow thinking.
Where’s the outside-in view of developing a car?
Well, maybe this was evidenced by the Chief Economist of the bank, who presented after the CEO. He talked a lot about economic activity, which was all very interesting, and then moved into territory that maybe he shouldn’t. Talking about bitcoin and cryptocurrencies, the commentary went as follows:
“You could invest in cryptocurrencies or you could go to Monte Carlo and place your money on the roulette wheel. The odds are the same, although probably slightly better on the latter bet. The issue is that cryptocurrencies are flawed on two fronts. First, no currency actually has any intrinsic value. For example, the pilgrim forefathers who sailed to America in the 17th century took no food with them, but carried plenty of gold. Their idea was to buy food when they landed. The idea didn’t work as the Native Americans wouldn’t sell them their food in exchange for gold as, for them, gold had no intrinsic value. This is the problem with cryptocurrencies.
“34% of all economic activity is around taxes: corporation tax, income tax, import and export taxes, sales taxes and health taxes. The issue is that governments will not recognise cryptocurrencies as they see them as undermining government controls. That makes cryptocurrencies unusable as they cannot be used for a third of all economic activity.
“The second issue is that for a currency to be effective, it has to act as a store of value. We know that a dollar today is going to be worth a dollar a year from now or a decade from now. It may be worth more or less in spending power, but the control of the monetary supply by the governments of the world make sure that there is always enough currency to meet demand.
“With cryptocurrencies, there is no store of value or control, so I have no idea how much the currency will be worth tomorrow, let alone a year from now. For these reasons, they do not work.”
Now, I’m not one to take exception to these comments … except I will, as again, we are stuck in our narrow focus of the ways of the past. A currency has to be issued and recognised by a government to work, and has to have certainty.
On the first point, I agree that governments need to recognise the currency, which is the flaw today in most cryptocurrencies. But this will change. As David Birch, heralded author of “Before Babylon, Beyond Bitcoin”, notes: “a digital currency that is backed by a reserve (whether of dollars or some basket of currencies or, indeed, commodities) is a sensible idea.”
As Christine Lagarde, she of the IMF and French courtrooms, notes: “citizens may one day prefer virtual currencies, since they potentially offer the same cost and convenience as cash —no settlement risks, no clearing delays, no central registration, no intermediary to check accounts and identities. If privately issued virtual currencies remain risky and unstable, citizens may even call on central banks to provide digital forms of legal tender.”
If such laudable figures are saying that a digital currency is needed, which is not the same as a cryptocurrency, then surely one day it will come. When it does, it will also bring a whole new fleet of cars and new road building, to replace the horse drawn carriages of fiat currencies we have today. That’s what I’m really getting at when I say we need to reinvent finance for customer-centricity using FinTech, and for fast and near-free exchange via digital currencies on a globalised basis.
Digital, crypto and virtual currencies are used interchangeably but are not the same things.
A digital currency is issued and usually controlled by its developers, and used and accepted among the members of a specific community who recognise its validity. It is a medium of exchange that operates like a currency in this environment but it doesn’t have the attributes of real currency unless issued by a central bank, such as the Ecuadorian digital dollar.
A cryptocurrency is currency based on the principles of encryption and cryptography to provide a secure medium of exchange. It provides a digital token that relies on cryptographic principles to chain together digital signatures of token transfers. It is often based on a decentralized peer-to-peer network, and illustrated particularly well by bitcoin.
A virtual currency is usually the term used for currencies used in online gaming, such as World of Warcraft. It only has value within that game, and provides incentivisation to play the game more, so that you can trade and exchange such currencies with other players.
A digital currency is not always a cryptocurrency. Cryptocurrencies and virtual currencies are always digital currencies.