As The Banker celebrates its 90th birthday, I’m often asked how quickly the changes I outline in technology will take to become mainstream. Well, it won’t be 90 years, but it will be somewhere between 10 and 20 years. The building of a real-time, almost free financial network on the internet, using blockchain and mobile, will take a decade at least before it becomes mainstream.
Some say: “That’s a long way off! Can we talk about something happening sooner?” That’s an interesting reaction. Sure, we could talk about how Apple Watch payment apps or Chase Pay will develop. But, I am not talking about incremental innovations here, but fundamental ones. The rebuilding of the whole financial market using shared ledgers. The inclusion of 7 billion people in the financial network through mobile. Those are the big-ticket items. Another user signing up to internet payment solutions PayPal or Stripe may be interesting, but it is not the massive change we can see coming downstream.
Hitting the big time
So why is this fundamental change going to take at least 10 years? Because that is how long any major change takes to become mainstream, due to 'the waterfall effect'. The waterfall effect is exactly what its name suggests: the cascade of change, flowing from idea to implementation to acceptance to mainstream. And you have to remember that there are many factors at play here. It starts with a new technology, such as the blockchain shared-ledger protocol. The technology then has to be built into something robust, and new providers are created to innovate – Blockapps, Chain, Chainalysis, Choosecase, Circle, Coinbase, Consensys, Epihpyte, Erethreum, Eris, Ledger X, R3CEV, Ripple, Symbiont, Tradeblock and more – and to allow the technology to be adopted.
Then, the large incumbent technology providers start their programmes to join these new innovators and bring them into an architecture that works for their bank clients. Some say the incumbent technology companies move too slow. In fact, some believe that the real problem is not banks' legacy systems but their legacy providers, but hey, let’s not go there. Eventually, the providers get it, and fit the technologies into their frameworks and architectures.
Eventually it is ready for bank prime time.
Then that’s another story, as now the banks have to adapt and adopt the frameworks and architectures from their incumbent providers and innovative start-up partners. That takes time, and different banks move at different speeds, depending on the use case and ability to change.
Let’s say this has taken about six years, and that is how long it has taken to get shared ledgers from Bitcoin creator Satoshi Nakamoto’s white paper to serious use cases being adopted by banks as proof of concept, and that’s still a way off from proof of concept to implementation and mainstream use. In many cases, the latter is still three to five years away. For the sake of argument, let’s say it takes a decade to get from the white paper to mainstream incorporation.
Blink, you won't miss it
OK, so now we are getting somewhere, but we are still not there as the corporations and consumers haven’t been touched yet. Often a bank can innovate and sometimes even innovate fast, but then its customers have to change too. Corporates will adapt and adopt a technology that will reduce costs and improve straight-through processing but, similar to the banks and their incumbent technology providers, corporates also have legacy systems and legacy providers, which also have to adapt and change.
Give that another five years and then, finally, consumers can have the service. But do they want it?
According to many of my bank friends, every time they update their bank's app with new features and changed interfaces, their net promoter score – a measure of user satisfaction – goes down. This is because 80% of customers don’t like change. So the consumer takes another year or two before they switch onto the new cheaper, faster service. And hey: we’ve got there.
But this waterfall effect – the sequence of new technology, start-up developers, incumbent providers, main markets of usage, clients of main market users and, finally, customer of clients – means that any major technology change takes at least a decade, maybe up to three decades, before it becomes mainstream. After all, the mobile phone was invented in 1973 but took almost 30 years to enter the mainstream. We talk about how things are moving faster – apps go viral in seconds – but these are things that move once you’ve changed the underlying architecture, and that’s why ground-breaking change takes decades. Once you’ve made the change however, everything that sits on that underlying architecture can move at light speed.
This is why the blockchain will take another decade before it is mainstream, as it’s changing the foundations, the rails, the roads of finance. It’s not just a bit of froth on the foundation, like most of the apps out there.
Chris Skinner is an independent financial commentator and chairman of the London-based Financial Services Club.
