financial services 2.0 innovation, disruption, automation and trust
TRANSCRIPT
Financial Services 2.0 : Innovation, Disruption, Automation & Trust
2Where character is never in question and excellence is always the answer. TM
Agenda
1. WHAT is Financial Services 2.0 ? andWHY is it happening now ? pg 3, pg 7
2. WHERE are we in the revolution ? pg 93. HOW is “IT” driving change ? pg 144. HOW will business models evolve ? pg 245. HOW will corporations adapt ? pg 316. WHAT are the implications ? pg 407. WHEN will impact reach the tipping point ? pg 57
3Where character is never in question and excellence is always the answer. TM
WHAT is Financial Services 2.0
and
WHY is it Happening Now ? 1
4Where character is never in question and excellence is always the answer. TM
WHAT is Financial Services 2.0 ?The evolving, next generation landscape or set of financial infrastructure,
capabilities, partnerships and consumer expectations, that leverages peer-to-peer
(P2P) and advanced data technologies, to add and exchange value, reduce costs,
latencies and risks and enable new markets, products and services for the 21st
Century global marketplace.
» Replacing the outdated model of vertically integrated product segments, via:
– INNOVATION: Inclusion, Connectivity, Collaboration, Commerce, Smart Data
– DISRUPTION: Eliminating Middlemen & Frictions (Cost & Latency), FinTech investment, impact and Convergence, Industry Redefinition, Destruction of traditional operating models, Restructured Value Chains, Redefinition of Customer with new powers and expectations
– AUTOMATION: Internet of Value, P2P, Blockchain / DLT, Smart Contracts, IoT, Machine to Machine Economy, Artificial Intelligence, Machine Learning, Predictive & Prescriptive Analytics
– TRUST: Rebuilding Trust with Protocols not People or Institutions, Eliminate The Middleman, Full Transparency, Trustless Transactions, Trusted Staff and Partners
5Where character is never in question and excellence is always the answer. TM
“Finance 2.0”• Internet gave us a powerful way to share and
access information.
• Blockchain now gives us a powerful way to share and access value.
6Where character is never in question and excellence is always the answer. TM
OPAQUE TRANSLUCENT TRANSPARENT
TRUST & FRICTION DISRUPTION INNOVATION
From Centralized Trust With Middlemen Controlling Transactions To A Trustless Transaction Economy
7Where character is never in question and excellence is always the answer. TM
WHY is Financial Services 2.0 happening now ?The 5th Wave of Productivity is driven by technology innovations and accelerated by demographics, and the loss of trust in Financial and Governmental institutions after the financial crisis.
» Financial Crisis of Confidence in Financial Institutions (2008)
» Launch of Bitcoin (2009), or Blockchain 1.0 - P2P movement of tokenized value aka Programmable Money
» Over $19 Billion was Invested in FinTech Companies Globally in 2015 !
» Data Explosion due to Social Media, Mobile, GPS, RFID, E-Commerce, anticipating IoT
» Millennials are less loyal to brands, technically savvy and driven by convenience
» Market Explosion due to Opportunities and Needs of 3rd world unbanked
» Maturing of Big Data Analysis and Artificial Intelligence Tools
» Blockchain 2.0 - Smart Contracts aka Programmable B2B Business Processes
» Vision for Blockchain 3.0 - Programmable Corporations (DAO)
8Where character is never in question and excellence is always the answer. TM
WHY is Financial Services 2.0 happening now ?Financial Services Investment in Blockchain & Bitcoin Startups and the Evolution of Social Media
9Where character is never in question and excellence is always the answer. TM
WHERE are we in the Revolution ?2
10Where character is never in question and excellence is always the answer. TM
WHERE are we in the Financial Services 2.0 Revolution ?At early stage of Innovation Pattern, that will lead to wave of creative destruction.
» Blockchain aka Distributed Ledger Technology: equivalent to 1995 Internet
» P2P: disruptive, development paridigm for the future
» Big Data: demands driving use case move from Descriptive to Predictive and Prescriptive Analytics
» AI: moving from research into business strategy and operations
» IoT: Preparing to connect 25+ Billion devices to redefined economy in 5-10 years
» Applications:
– New Advice : ROBO Advisors moving from 1.0 to 2.0, providing multipleasset classes, rebalancing, and tactical asset allocation for short term risk avoidance.
– New Products : Are Cryptocurrencies a new asset class ?
– New Markets: Extending services to the 2.5 Billion Unbanked ?
11Where character is never in question and excellence is always the answer. TM
Analog Innovation Pattern Meets the Digital Network Effect
SCHUMPETER'S
PRODUCTIVITY
WAVES
OF
CREATIVE
DESTRUCTION
MEETS THE
DIGITAL
INFORMATION
TSUNAMI
Analog MachinesElectro-MechanicalMachines
Digital Machines
12Where character is never in question and excellence is always the answer. TM
2010s 2020sBLOCKCHAINCONNECTED WORLD & WEB OF VALUE, DRIVEN BY DIGITAL / CRYPTO CURRENCY TOKENS, DISTRIBUTED APPLICATIONS AND SMART CONTRACTS ...
IoT
REAL TIMEFULLY RESPONSIVEECOSYSTEM of PEOPLE, PROTOCOLS AND MACHINES
Digital Network Effect Will Accelerate Innovation Impact
13Where character is never in question and excellence is always the answer. TM
Managing Hype Along The Way To Adoption and Impact
Gartner 2016 Hype Cycle
14Where character is never in question and excellence is always the answer. TM
HOW is “IT” Driving Change ?3
15Where character is never in question and excellence is always the answer. TM
HOW is “IT” Driving Change ?
IT Will Have Many Innovation Roles :
» Educator of Executive Management, Business Leadership & IT Staff
» Enabler via Innovation Lab Processes, Partnerships and “fail fast” Mindset
» Solution Builder of best practice based solutions
» Business Partner internally and with 3rd parties for ecosystem
» Strategic Planner for phased delivery of next generation capabilities
» Service Provider internally and externally
16Where character is never in question and excellence is always the answer. TM
A New Brave World:Blockchains
vs.Middlemen
IT as Educator
Coming Soon !
17Where character is never in question and excellence is always the answer. TMIT as Educator
WHAT Is The Blockchain ?
■ A new form of information technology, a decentralized system of checks and balances, an infrastructure, an organizing system that is universal and planetary-scale
18Where character is never in question and excellence is always the answer. TMIT as Educator
Blockchain Explained
What it enables What it is
Its impact
19Where character is never in question and excellence is always the answer. TMIT as Educator
HOW a Blockchain Works
Transaction creation
Transaction verification
Block Creation
Block Validation
Block Added To Chain
20Where character is never in question and excellence is always the answer. TM
1. DISCOVERKnowledge, Ideas & Best Practices
2. INCUBATEPartners, Systems & Needs
3. ACCELERATECapabilities & Impact
Survey
▪ SURVEY Industry Landscape, SMEs, Interested Parties, Points of Pain, Possible Partners & Opportunities (ITERATES)
Educate
▪ EDUCATE IT / Business by Collecting / Augmenting and Publishing External / Internal Information Sources for Follow Up Use.
Manage
▪ MANAGE the processes, Data Flows, Linkages and Status Reporting Requirements
Solidify
▪ SOLIDIFY Clients, Vendors, Proof Of Concept Candidates and Options For Testbed Ecosystem
Identify
▪ IDENTIFY Specific Proof Of Concept and Associated Use Cases
Establish
▪ Research, Document, Train and DELIVER Ecosystem TO ALLOW IMPLEMENTATION AND TESTING of Proof Of Concept Use Cases
Extend OR
▪ Define, Plan, Resource and DELIVER EXTENDED Proof Of Concept Capabilities
Aggregate OR
▪ Define, Plan, Resource and DELIVER AGGREGATE Solution to Previously Identified Points Of Pain
Initiate
▪ Define, Plan, Resource and DELIVER NEW Corporate INITIATIVE
A
B
C
E
G
H
I
Innovation Team Operating Model: Fail Fast
Knowledge Repository & Roadmap Ecosystem for POCs Major Initiative
D
F
IT-Enabler, Business Partner & Service Provider
21Where character is never in question and excellence is always the answer. TM
Digital Identity Is Critical For Next Generation Solutions
IT as Solution Builder
2005 2020
22Where character is never in question and excellence is always the answer. TMIT as Strategic Planner
HOW Will Blockchain Be Used In The Future ?
23Where character is never in question and excellence is always the answer. TMIT as Strategic Planner
Planning For The Next Phase Of Blockchain
24Where character is never in question and excellence is always the answer. TM
HOW will Business Models Evolve ?4
25Where character is never in question and excellence is always the answer. TM
HOW will Business Models Evolve?
The evolution of Business Models will be accelerated by the elimination of cost and latency frictions, producing disruptions, new markets, products and services.
These new business models will :
» Adopt Digital Identity for People, Organizations, Devices and Ideas
» Require Distributed Ledger Interoperability for Payments, Consortia driven solutions to common industry problems, Global Supply Chains and lastly, perhaps, for internal corporate business processes and data flows.
» Consolidate Reputation Models to utilize Blockchain Technology & Identities
» Adopt Smart Contracts to automate business processes
» Derive Business Value and Competitive Advantage from Big Data & AI
» Deliver efficient, transparent, client centered, regulator certified goods & services
26Where character is never in question and excellence is always the answer. TM
By Connecting People** (Digital Identity) ...
** Paridigm Shift: Transition from Username / Password to Digital Identity and connecting 21st Century Identities: People, Organizations, Devices and Ideas
27Where character is never in question and excellence is always the answer. TM
… and Connecting Processes** (Business Logic)
● Eliminates Friction and Costs
● Increases Productivity
● Creates andDestroys Jobs
**Smart Contracts and Best Practice based Templates to automate the well defined & understood cases, leaving human talent to focus on exceptions and value creation.
28Where character is never in question and excellence is always the answer. TM
By Embracing The Next Generation Business Model:The Internet of Value
- DISRUPTING THE DISRUPTORS- 21ST CENTURY WORK & BUSINESS MODELS- SMART CONTRACTS- DISTRIBUTED AUTOMATED ORGANIZATIONS
Closed and Centralized Networks Open Networks andCentralized Cloud
Open Networks andDistributed Cloud
29Where character is never in question and excellence is always the answer. TM
Example: Car Leasing Business TODAYExample: Car Leasing Business: TODAY
30Where character is never in question and excellence is always the answer. TM
Example: Car Leasing Business with BLOCKCHAIN
31Where character is never in question and excellence is always the answer. TM
HOW will Corporations Adapt ?5
32Where character is never in question and excellence is always the answer. TM
HOW will Corporations Adapt ?Corporations must meet the challenges of accelerating business competition and revenue pressures, by smartly identifying, building and integrating next generation capabilities, emphasising ease of use and reliability with enhanced client security and privacy.
Expected Corporate Adaptations:
» Blockchain 3.0: Long Term Vision for Automated Corporations, Will DAOs be King ?
» More Software (Smart Contracts), less (but more impactful) People
» More Skilled, Information Savvy Staff, less “Paper Shufflers”
» More Nimble, Loosely Coupled Departments, Just In Time Roles and Budgets
» Must provide Work-LIfe-Balance to get and keep Top Talent
» By Disrupting the Disruptors !
» Build a culture of Consistent Excellence during Constant Change, based on client needs and innovation … not on risk aversion
33Where character is never in question and excellence is always the answer. TM
Corporations Evolve Toward Blockchain Based Organizations
All internal and external relationships are managed via blockchain based smart contracts
34Where character is never in question and excellence is always the answer. TM
Corporations Evolve TowardAnti-Fragile, Self Improving Organizations
Handling Stresses
Fragile: BreaksRobust: ResistsAntifragile: Improves
Antifragile systems increase in capability, resilience, or robustness as a result of stressors, shocks, volatility, noise, mistakes, faults, attacks, or failures.
35Where character is never in question and excellence is always the answer. TM
Future of Finance
Automation at the Center
Humans at the Center
Humans at the EdgesAutomation at the Edges
Financial Services Evolves Toward Artificial Intelligence Solutions
36Where character is never in question and excellence is always the answer. TM
Example: Disrupting Services - Uber vs Blockchain
LaZooz.net
37Where character is never in question and excellence is always the answer. TM
Example: Correspondent Bank Disintermediation
38Where character is never in question and excellence is always the answer. TM
Example: Unbundling of a U.S. Bank
Mortgages Merchant Services
Financing and Credit
Payments Payroll
Wealth Management
Insurance
Investing and Retirement Planning
39Where character is never in question and excellence is always the answer. TM
TRUST
INTEGRITY MATTERS BECAUSE REPUTATIONS TAKE YEARS TO BUILD BUT CAN BE DESTROYED IN MINUTES ...
CULTURE Matters, Even with Trustless Transactions :The 5Ps - Managing Excellence During Constant Change
40Where character is never in question and excellence is always the answer. TM
WHAT are the Implications ?6
41Where character is never in question and excellence is always the answer. TM
WHAT are the Implications ? ECONOMY
Move To A Trustless Transaction Economy & Society i.e. Mobile, Frictionless Products and Services
Merging of Tech and Financial Services Companies: Ultimately Banks become “service nodes on the network”, Markets and Business Models disrupted and redefined e.g. Funding, Lending …
Human Capital Still Key. Wave of Creative Destruction, Education / Demographics will drive Talent Acquisition / Retention e.g. Work/Life Balance, JIT work force, Corporate Structure Evolution - DAOs ?
TECHNOLOGYThe Internet Of Value: Blockchain, Mobile, Big Data, IoT and AI:
● Transition from Username/Password (“Shared Secret”) Security Model, to new unified, digital and device identity model
● Cryptocurrencies and Fiat currencies converge to fully enable P2P economy
● Programmable Assets, Trust, Ownership, Money, Identity, Contracts
● Smart Contracts & Applications utilize Blockchain, Big Data, AI etc. to remove latencies, include billions of IoT devices, automate business processes and move up the Intelligence curve.→ Shorter Settlement Cycles, → New Products and Services → The Rise of Robo Advice !
42Where character is never in question and excellence is always the answer. TM
Implication: FinTech Growth Endangers Bank / Customer Relationship … Here come the GAFAs.
FINTECH
Payments
Raising Funds
Digital Currencies
Advice
43Where character is never in question and excellence is always the answer. TM
Banks are frightened by GAFAs financial power and brand image
Implication: New FinTech Banks Driven By Financial Power and Brand Image ? (Google, Apple, Facebook, Amazon)
44Where character is never in question and excellence is always the answer. TM
Implication: GAFAs Will NOT Become Banks … But Banks May Become Slaves of GAFAs ?
• Not profitable enough (negative impact on market cap)• Too regulated• “Slow” growth
What banks fear most are GAFAs owning the customer relationship and them becoming the mere white labels at the back end of the process
45Where character is never in question and excellence is always the answer. TM
Implication: Blockchain Backbone For Financial Services
Distributed Ledger Solutions will replace Centralized SystemsDistributed Ledger Based Services will replace Centralized, Legacy Systems
46Where character is never in question and excellence is always the answer. TM
Implication: Blockchain Impact in Post Trade Processing
Streamlined Securities Settlement
Reducing Latency and Risk
Removal of $20 Billionin Post Trade Processing
Costs by 2022
47Where character is never in question and excellence is always the answer. TM
Implication: Blockchain Impact Across Entire Trade Cycle
48Where character is never in question and excellence is always the answer. TM
Implication: Rise of Robo Advice in Wealth Management
49Where character is never in question and excellence is always the answer. TM
Implication: Robo Advice Moving From Awareness to Adoption
50Where character is never in question and excellence is always the answer. TM
Implication: Robo Advice Managing $2 Trillion by 2020
68 %
51Where character is never in question and excellence is always the answer. TM
Implication: Blockchain Will Help Integrate The IoT
52Where character is never in question and excellence is always the answer. TM
Implication: IoT in Financial Services
1. Monitoring & data transmission
2. Data collection and management
3. Strategicanalytics
4. ValueCreation
DATA
MANAGEMENT
PLATFORM
Financial product development
Risk management & pricing of finance
Identifying additional business needs
Streamlining contractual processes
53Where character is never in question and excellence is always the answer. TM
Implication: IoT / Smart Data In Financial Services
Right time and channel to connect
Fraud and AML
SME Credit
Budgeting
“Right Time” Marketing
Smart Learning and Real Time ServicesUse Transactional, locational, communications and social media for customer engagement
Improve AML and Use Pattern recognition software to catch fraud
Use customer behavior to help SMEs manage cash flow
Combine customer behavior patterns with savings goals for planning
54Where character is never in question and excellence is always the answer. TM
Implication: IoT In Asset Financing
55Where character is never in question and excellence is always the answer. TM
Implication: IoT in Insurance, Customized Products
56Where character is never in question and excellence is always the answer. TM
Implication: IoT Economy
57Where character is never in question and excellence is always the answer. TM
WHEN will we reach tipping point ?7
58Where character is never in question and excellence is always the answer. TM
WHEN will impact reach the tipping point ?The disruption of the financial sector is underway. FinTech / Financial Services Collaboration and Convergence are reshaping the value proposition of existing products and services. Banking and Payments are ripe in the short to mid term, followed by Insurance and Asset Management.
The “Tipping Point” may be driven by some of these facts, surveys, estimates and needs:
» Over 20% of Financial Service business at risk to Fin Techs» Up to 28% of Banking and Payments business at risk by 2020» Up to 22% of Insurance, Asset / Wealth Management business at risk by 2020
» 25% of Financial Services firms do not liaise with FinTech companies at all. They will underestimate the potential benefits and threats of the convergence.
» Mobile only accounts for 16% of Advertisement Revenue Today, within 5 years, expectations are that 60% of clients will be using mobile applications (at least once a month) to access financial services
» Large scale Digital Wallet adoption is critical and requires simplified key management(FYI: Apple Iphone App store now supports 9 cryptocurrencies … )
» Must solve the Millennial Problem
59Where character is never in question and excellence is always the answer. TM
Tipping Point: Solving The “Millennial Problem” ?
60Where character is never in question and excellence is always the answer. TM
Tipping Point: The FinTech Tsunami ?
Fintech could reduce banks revenues and profits by up to 40% and 60% over the next decade
-60% -40%
61Where character is never in question and excellence is always the answer. TM
Tipping Point: Rise of Inorganic Intelligence
Artificial Intelligence
Distributed Computing
62Where character is never in question and excellence is always the answer. TM
Thank You
63Where character is never in question and excellence is always the answer. TM
BOB BONOMO President Bob Bonomo, LLC
CEO Blockchain Innovation Group, LLC
Mr. Bonomo is a Digital Currency Council certified Technology, Process and Business Consultant and former Chief Information
Officer at two major Wall Street firms. He currently chairs the Technology and Product Committee of the Wall Street Blockchain
Alliance.
His areas of expertise are the Asset Management component of the Global Financial Services sector, Blockchain / Distributed
Ledger Technologies & the Bitcoin Cryptocurrency Ecosystem.
Bob believes the productivity and disruptive nature of Blockchain’s Distributed Applications (Dapps) will accelerate the
displacement of many centralized systems and services, initially across Wall Street’s Back Office, via consortia, for Settlement time
and cost reductions, followed by the Buy-Side’s Front Office for Product and Service transparency & compliance differentiation, and
then, more generally, across the global corporate landscape of supply chains of goods and services - creating “a 21st Century
Intellectual Assembly Line of Innovation”.
Recent engagements include Business Development, Tech Strategies, Vendor, Risk, Staffing & Funding Analyses and Program
Management / Delivery at Large Financial Institutions, Cryptocurrency Trading Desks and Blockchain Startup Companies.
Via his Blockchain Innovation Group, Mr. Bonomo helps concept stage startup companies evolve to achieve funding, staffing and
operational excellence. He’s formed PayToSkip.com and GuvChain.org startups as disruptive plays in Advertising and Government.
Previously Mr. Bonomo spent over 25 years on Wall Street designing, delivering and managing innovative global systems, processes
and teams.
From Developer to CIO, he was a key transformation agent at Sanford C. Bernstein / Alliance Bernstein and OppenheimerFunds Inc.
In another lifetime, Bob worked at JP Morgan, Moody’s Investors Service and Digital Equipment Corporation. He received a B.S. in
Computer Science from Columbia University School of Engineering & Applied Science in 1981.
64Where character is never in question and excellence is always the answer. TM
CREDITS My LinkedIn Profile - Bob Bonomo
Centralized, Decentralized and Distributed Systems (Paul Baran, 1964)
Joseph Schumpeter (1883–1950) coined the seemingly paradoxical term “creative destruction,”
My not so random walk down Tech Avenue, Wall Street and Blockchain Boulevard
Gartner Hype Curve 2015 http://www.gartner.com/newsroom/id/3114217
https://www.linkedin.com/pulse/blockchain-powering-internet-value-jarle-holm
https://evry.com/globalassets/insight/bank2020/blockchain-powering-the-internet-of-value---labs-whitepaper.pdf
https://www.cbinsights.com/blog/financial-services-bitcoin-investors/
http://firstpartner.net/news/new-market-map-defines-blockchain-ecosystem
https://www.accenture.com/_acnmedia/PDF-2/Accenture-Wealth-Management-Rise-of-Robo-Advice.pdf
http://www.slideshare.net/kantox/the-next-10-years-in-fintech-57726895
https://www.amazon.com/Business-Blockchain-Practice-Application-Technology/dp/1119300312
http://www.oliverwyman.com/content/dam/oliver-wyman/global/en/2016/feb/BlockChain-In-Capital-Markets.pdf
https://www.pwc.at/publikationen/branchen-und-wirtschaftsstudien/fintech-global-report.pdf
http://santanderinnoventures.com/wp-content/uploads/2015/06/The-Fintech-2-0-Paper.pdf
https://www.pwc.com/jg/en/publications/pwc-project-blue-2.0.pdf