Banking unchained

It’s easy to get caught up in the hype about cryptocurrencies and forget the much wider applications of the disruptive blockchain technology beneath it all.

Blockchain has introduced a new world of value exchange that’s already affecting the shape of banks and the way they do business. Marcus Treacher has deep experience of the world of global banking, payments and clearing, and shares his thoughts with Odgers Berndtson’s Nick Miller, Partner in the Financial Services Practice.

Marcus, you’re Global Head of Strategic Accounts at Ripple, the enterprise blockchain solution for global payments used by many leading financial services businesses. What’s your take on this technology and its impact on financial services?

Marcus Treacher: I think behind all the headlines and speculation, you have to see that the technology is making a profound change and is really challenging traditional ways of doing business.

With blockchain, we’re seeing the redefinition of how records are kept, funds are moved and transactions settled. Essentially, it’s the secure recording and distribution of value in a whole new way and has the potential to deliver a huge cut in costly admin across several industries.

Ironically, the basics of what we see today in blockchain technology were around decades ago, but the real breakthrough has been to assemble these technologies in new and creative ways. We’re really in the foothills of change, first of all improving what we’ve always done process-wise, making finance fit for purpose in the 21^st Century, you might say before we start to really transform banking paradigms.

It’s a lot like TV’s first days when the programmes relied heavily on radio formats that everyone was familiar with before anyone started to fully explore the potential of the medium. As the world starts to absorb blockchain’s possibilities, then it will come into its own and we should expect to see revolutionary new uses being created. Then the pace of change will accelerate even more.

A future economy would be able to handle, for example, a huge number of tiny payments made, processed and recorded instantly between robots and other intelligent devices, in exchange for services, or within an automatic supply chain system or manufacturing process.

The speed of adoption of new technology can be determined by many factors, what are the forces at play here?

MT: Well, with something this fundamental, there are many dimensions and serious issues to engage with. At Ripple, for example, we are looking at implementing new and greatly improved methods of making cross-border payments, requiring a constant dialogue with the regulatory bodies and government institutions as the scenario plays out.

There might very well be a divergence in adoption between, for example, the more established banking systems in OECD countries with layers of legacy, tradition and practice to navigate, compared to say, rapidly changing but still relatively unbanked areas of the world like Africa. They might move at a greater pace.

The type of business is interesting too. A smaller start-up in an emerging part of the world might be more inclined to adopt a blockchain-based platform into their business model as they grow and demand better services. That breed of business is already used to new tech ways, so it will seem like a natural progression.

Nick Miller: What about the effect on corporate and investment banks specifically?

MT: Well, something like blockchain will certainly catalyse the unbundling of the universal banking proposition that dominated before the financial crisis.

We might very well be heading to a model where their banks specialise more, whether as specialists at the top end of the value spectrum doing the creative, complex deal stuff, or as specialists in a particular geography or proposition. In addition, other players are entering the transaction banking space as it opens up under PSD2 and other directives, who might not be banks as we know them today.

If you’re a company such as Amazon or Alibaba with massive amounts of data and frequent points of contact with your customer, offering banking services would be a relatively natural next step with precision-built products’ well-informed by data insights and a clearer picture of risk.

The shape of banks to come might also include, for example, a move from a global ‘all over the world’ model to the ‘bank of a region’, really understanding what fits a particular geography and then delivering it with the new technology. This is all part of banks increasingly deciding which specialism they can do best and then be sticking to it.

I’m sure there will also be plenty of further fine-tuning of digital assets for different roles, some for holding value, some for making high-value transactions, others for documentation roles.

NM: Financial regulation and governance are on everyone’s plate at the moment. Is this a good time for innovation?

MT: Yes, there certainly is a tension between the financial crash-driven drive towards regulation and compliance, versus the need to invest in new technology-driven ideas which might be able to greatly improve a bank’s future competitiveness. It could also potentially solve existing challenges in whole new ways. For example, blockchain technology has made transfers and transactions more visible and transparent and records less tamperable. You could say it actually makes governance easier, or at least in need of a positive re-think. In addition, with a stable, resilient system of value exchange, you’re removing a large measure of the uncertainty in delivery and cost caused by today’s opaque methods of payments. 

I think we need a balanced approach in this transition stage; tech progress by all means, but always with an eye on the stability of the whole system.

NM: With all that’s coming down the pipeline, is banking still a good career?

MT: Certainly, it is, although it will look different and offer changed prospects.

Automation will continue to free-up bank workforces to spend more time thinking about and serving their customers. This trend towards more customer-focus in financial services roles will demand more skills, like creativity, teamwork and empathy and the type of thinking that is really in touch with the customer.

However, in the future, you might be working for something that looks less like the bank of today and more of a hybrid, combining banking with, say, a trading house, or a manufacturer.

I’m one of those who is positive that overall the rise of tech will create more, but different jobs, combining roles perhaps, with different systems of reward.

I think, despite bots and AI, the human touch will still be required where it is appropriate. For example, the corporate investment and M&A spheres.

The most successful banks will be those that inculcate digital skills at all levels of the organisation, giving them a critical feel for how new technologies can be applied and where challenges lie. This will also give their leadership the insight and comfort to be bold and creative with technology adoption.

Moving an organisation forward from a safe, comfortable position to a brave new reality is the great leadership challenge of our times. In five years, we’ll be able to look back and see who moved fast enough.

EG: Thank you, Marcus, for your insights. They’ve helped us see beyond the headlines into what tomorrow’s world of banking might be like, and the leadership challenges that come with that.

If you’d like to continue the discussion, please don’t hesitate to get in touch.