After many years working in banking, I’m convinced that financial services are ripe for transformation driven by new technologies.
My new business, 10x Future Technologies, for example, aims to clean up the creaking pyramid of mainframes, servers, networks, protocols and other IT on which the vital banking services we use every day are based. This will enable financial services providers to offer superior, faster and cheaper services.
Banks need to continue to innovate to remain agile in the coming decades as technology causes periodic waves of transformation. As I recently outlined on the BBC’s Newsnight programme, one of the most exciting innovations is blockchain technology, which has the potential to reinvent the way we use money and contribute to a finance system that’s high quality, low cost, secure, fair and transparent.
Today, I’m joining the board of Blockchain Ltd, which is helping to make this technology a reality and usher in a new era.
Challenging the status quo
Money is such an essential part of our lives that it’s hard to take a step back and think about how it works. We take it for granted, for example, that traditional banks are the arbiters of our financial lives, processing our payments, providing our mortgages and overseeing our account balances. That makes it hard to think about whether this system is the best we can design, and even harder to countenance disrupting the balance that holds it all together.
But while financial services continue to innovate and improve customers’ experience of banking, they currently only do so at the fringes of this core system, whose fundamentals remain largely untouched. That’s because the digital services increasing numbers of us are turning to for better deals – the e-mortgages, online money transfers and digital savings accounts – still use most of the same core services as the traditional banks. And until those core services are overhauled, the truly disruptive innovation that could be a boon for customers and the financial system as a whole will struggle to materialise.
Let me explain. When we think of a bank, most of us picture the organisation that provides everyday retail services, such as current accounts and savings. But traditional banks also serve as the ultimate custodians of the financial system, processing transactions, settling payments and generally keeping track of how much money people have. It’s thanks to the banks, and to the network between them, that when you agree to transfer me £10, I know you’re good for the payment.
That’s true even if you use new digital services, like an online mortgage provider. Despite competing with the products offered by traditional banks, the operations of these new services still rely on the existing interbank network to clear payments and organise money.
The bright future for digital currencies
Blockchain, however, shows another way. Instead of relying on old centralised computer systems to keep accurate records of people’s money, digital currencies use distributed ledger technology – essentially, an unalterable record that keeps track of transactions and people’s money (a ledger). But unlike in the current system, the unalterable ledger does not need to be held in one institution, since it is impossible to tamper with it except to add more transactions to a tamper-proof digital record.
Instead, the ledger is accessible by anyone, with details of transactions hidden behind undecipherable levels of code to which no individual or financial institution has the key. It is entirely decentralised, or ‘distributed’. And an unalterable chronological archive, unlike current bank computer systems, is impossible to defraud, which is a big boost for security.
The world is open for business
The ramifications of Blockchain’s technology are potentially enormous. Traditional banks’ record-keeping function would no longer need to exist, because this could be transferred to a digital system. Online providers or a whole host of other brands could begin offering financial services directly through the blockchain, and those financial institutions that are eager to embrace these new technologies could find they present huge opportunities for their business.
For customers, that could significantly drive down the cost of financial products through greater competition. Peer-to-peer services could become the norm, and there would be an explosion in customer choice. And with far lower costs to entry, millions of people in the developing world could find it far easier to access the financial services that we all take for granted.
My absolute conviction has always been that there can be no choice between doing well financially and behaving responsibly in business. As these new technologies begin to percolate throughout the financial system, the faster, cheaper and more secure banking products they could bring would help accelerate social and economic progress, to society’s benefit.
Fuelled by this vision, Blockchain is working with the technology that powers this new ecosystem. By joining its board, I hope to further its mission to use software to its full potential to ensure that the world is open for business.