Post By Simon Montford on Sept 27, 2018
When I attended Digit’s FinTech event held in Edinburgh last week – another impeccably run conference – one of the main, consistent themes was the rise of challenger banks. What became obvious from the talks I listened to and the conversations I had with delegates was that a classic David and Goliath scenario is starting to play out. Not only are plucky fintech startups like Atom, Monzo and Revolut enticing affluent young customers away from traditional banks, but they are also managing to convert them into fiercely loyal advocates. This is an extraordinary feat when you consider how much is spent by incumbents on advertising and marketing.
It turns out that being diminutive offers many strategic advantages. Unlike the big boys, they don’t need to manage expensive legacy systems or maintain physical branches, so they can move fast and operate lean. Instead of splurging on above-the-line advertising, they have formulated ingenious ways to build their brands using ultra low-cost methods like word-of-mouth marketing and, clearly, this is working. Not only are they acquiring new customers, but also successfully converting them into brand advocates. In effect, their customers are becoming their salesforce!
Hopefully, this influx of innovation will spark the old guard into raising their game, which will make bad customer service, high fees and poorly designed digital products a thing of the past.
There is, however, a looming threat – blockchain. I prefer the more general term, ‘distributed ledger technology’, but both describe the underlying protocol that makes cryptocurrencies like bitcoin and ether function.
When cryptocurrency becomes widely adopted, people won’t need traditional bank accounts or banking apps like those offered by the aforementioned fintech statups. All they will need is a digital wallet to store crypto, and this will make both traditional banks and challengers irrelevant. If you don’t believe me, just think back to the time when people stopped sending and receiving faxes. Crypto will do the same thing to money that email did to communication. It will become normal to get paid in digital currency and it will become the primary method of payment. Trust me, this day will arrive sooner than you think.
Granted, today’s cryptos like Stella Lumens, Monero and Dash are not quite ready for prime time. The same things that hampered adoption of the Internet, speed and security, are what is hampering the adoption of crypto. However, innovation in this space is moving at lightning speed and there are legions of seriously bright people working on it as you read this.
I urge anyone who says that cryptocurrency is only used by nerds, gangsters and fraudsters to stop because that statement simply isn’t true. You don’t want to be like those people who said the Internet was just a fad. Believe me. Decentralised digital money is here to stay, although it will evolve.
I predict that many of the cryptos in circulation today won’t be around tomorrow. I believe we’ll see the ERC-20 token standard die out as better alternatives to Ethereum emerge. They will become replaced by next-gen coins and tokens that can scale and meet the needs of real-world users. Only a few will survive and I predict bitcoin will be one of them (disclaimer: I don’t hold any BTC). It is far too slow and inefficient to be used as a global digital currency, but what makes it slow and inefficient is also what makes it incredibly secure. It is, therefore, far better suited to becoming a digital proxy of gold.
I don’t think we will see the total demise of the banking system, but it will change dramatically. The impact of decentralised programmable money powered by artificially intelligent autonomous agents will force it to collectively reinvent itself like it did when online payment systems were first introduced.
Don’t forget IBM, Apple, and Amazon all very nearly went out of business as a result of radical innovation, but two of them went on to become trillion dollar companies! The same may happen to existing players in the fintech sector. By imagining a better future it is always possible for companies to reinvent themselves and pivot towards opportunities that don’t yet exist. IBM ditched its hardware division and imagined Watson before the enterprise Artificial Intelligence market existed. Amazon imagined AWS before the enterprise cloud hosting market existed. Apple imagined the iPhone before the smartphone market existed.
It’s crazy and unintuitive, but to survive you need to imagine a better future and start developing products that fit your vision, even though the market doesn’t yet exist. Few companies are willing to try, because it is such a crazy concept.
Of course, there is a chance that your version of the future may not happen, but one thing is for sure – doing nothing will guarantee failure.
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