William Mougayar is a Toronto-based angel investor and four-time entrepreneur who advises startups on strategy and marketing. In the first of this three-part series, he discussed how banks dealt with the emergence of the Internet and how blockchain technology is causing these institutions a whole new headache. In part two, Mougayar looked at why banks should start embracing blockchain technology. Here, in part three, he explores the steps banks should take to make sure they lead the blockchain-banking revolution.
What should banks do?
Don’t just do pilots that automate old processes. Rather, launch major reengineering efforts across all processes and ask the important question: What could Crypto-Tech enable now if we reinvented it?
Here is a list of potential actions:
1. Hire or promote a leader
Hire or promote a real leader from within, and give them the title of “Blockchain Czar”. That person should have experience in banking operations and know about reengineering business processes via technology implementations. Tough to find that person? Find them. Let them be your spokesperson in the marketplace, not an analyst in your research department or someone in charge of innovation.
That person will be responsible for removing obstacles within your organization, education, best practices, and project managing the various implementations. This job is a tough one, but it involves finding and obliterating old processes, instead of blindly automating what you are currently doing.
2. Mine cryptocurrency
How about getting your feet wet with some mining action? Buy a few extra computers and mine bitcoin or other currencies so you can learn what it’s like be in the cryptocurrency waters. Here’s why Banks and Brokerages Should be Mining the Blockchain.
3. Train staff
Send the top 10% of your IT staff to courses on cryptocurrency platforms, tools and technology. Let them learn the bitcoin blockchain and its various overlay technologies, Ethereum’s contract languages, and many other ready-to-use crypto technologies.
4. Don't invest
Don’t invest in blockchain startups. Become one (if you can). Investing is not a spectator’s sport. You need to get involved, and not just watch. If an investment allows you to participate in the actual outcome of the technology solution, that’s one thing. But if your investment is so-called for learning purposes, you’re wasting that money.
Invest in direct learning and by doing stuff, and not by watching others. Operating like a technology startup is very different from operating inside a bank. Yes it is about culture, and a bank doesn’t have a startup culture, nor does the word innovation mean the same thing to a nimble startup that is hungry and ambitious, as compared to what it means to an overhead-laden bank.
5. Buy a bitcoin exchange
Immediately. The good thing about the proliferation of bitcoin exchanges around the world, (and there are at least 50 viable ones) is that there is one for each large bank out there. The merging of bitcoin trading inside banks is inevitable. Most of these exchanges have already developed the basic technology, but the biggest pain has been how new users fund and connect their wallets with their banking accounts.
If you merge online banking with bitcoin trading, you automatically eliminate the friction that currently exists for onboarding new users. OK, you’re afraid, I can tell. So, why not limit bitcoin conversions to $1,000 or something like that. Bitcoin to fiat conversions should be real-time.
You know how to handle customer relationships. The bitcoin exchanges have technical capabilities, but their CRM and customer support are not great. One of the big banks will blink first and buy one of the fledgling bitcoin exchanges and delight their existing customers. Why not you?
6. Re-invent trading and capital markets
Remove the delays and intermediaries. Delays means more costs. Real-time levels off inefficiencies. Remove the steps that are not need during the settlement and clearing stages.
7. Offer remittance services
Offer free (or really cheap) cross-border remittances services. Abolish wire transfer fees. That’s a tough one, and I’m sure you’re not going to do it. But if you used the bitcoin network instead of SWIFT, I can guarantee your transfer costs will decrease by orders of magnitude.
8. Create a cryptocurrency task force
You like task forces and committees. Create an internal cryptocurrency task force with members from each functional group, and let them have weekly meetings to share initiatives, projects, and learnings. Even better, get them all on a Slack group and invite anyone in the bank to participate in it.
A strategic roadmap
Most banking executives probably don’t even have a bitcoin account, nor have used a bitcoin wallet; yet they are in charge of their organization’s future when the future is staring them in the face with the word “blockchain” in it. This isn’t unlike the early Internet and email days, when corporate executives were laggard users and had their secretary print their email for them.
It is so important to get a first hand feel with a bitcoin account in order to experience the flexibility, speed and innovations that are built-in. For example, you can send money to anyone in the world by just knowing their email address or bitcoin address, without a banking relationship, and without going anywhere physical. That’s pretty awesome in itself. You can convert from fiat to bitcoin and vice-versa, including wiring money to a fiat account for free.
It is absolute freedom in terms of money movements, and it happens almost instantly and at the peer-to-peer level. Granted you can’t pay bills, and can’t easily use bitcoin at the cash register, but these aren’t show stoppers for now.
When every asset has a blockchain linkage, it puts it at par with bits that travel at Internet speeds. And that comes with a built-in trust layer that transports the transaction’s history and validation with itself. That’s a powerful capability (also called smart property), and it will free financial assets and instruments from the latency and inertia of legacy clearing and settlement processes and usher in efficiencies, speeds and innovations.
At the end of the day, it’s about financial services, not the blockchain. The blockchain is just an enabler.
If you can disrupt your business successfully, then you can also disrupt your competitors, but if you just focus on protecting your business, you’re really living in the status quo. Internal disruption is always more benign than an external one, especially if it is done pro-actively and on your own terms. It’s better to shoot yourself in the foot, rather than having someone else shoot you in the head.
But the road to disruption is paved with some casualties. Because the blockchain is a value disruptor, it will change the role of existing intermediaries. Some will get replaced, others will see their powers, influence and usage diminished. In the trading space, some of the current intermediaries at risk include SWIFT, CCP, FIX and the DTCC.
The first blinker
So, who will blink first? That first blink means buying a bitcoin exchange and totally incorporating its wallet into online banking. I know some libertarians will say that’s not what bitcoin was about. Bitcoin is about freedom to be your own bank. They are right, and with the passage of time and further sophistication, that might be possible. But in the meantime, you are the Bank, and you have a chance to keep that customer relationship going.
This revolution isn’t happening at Money 20/20, Finovate or Sibos. It’s happening elsewhere. It’s happening at the grass root levels in meetups, in stealth startups, accelerators and Github repositories.
“The blockchain is not perfect, but it is that perfect catalyst for business process changes, and this type of opportunity doesn’t present itself that often.”
And user-initiated blockchain apps are coming. They will look like SaaS apps that users can launch without anyone’s permission. Wow, that’s a lot of change. If you’re a banking executive, maybe I’ve got more of your attention, now.
The banks have an opportunity to re-engineer themselves. They missed doing that when the Internet came along. It’s not about bitcoin. It’s about exposing openness, decentralization, and speed. Consumers and business users want that.
The meaning of trust and transactions changes with the blockchain. Every centralized and manual process is up for grabs due to what the blockchain enables: self-enforcement of trust and smarter transactions with longer end-points.
The blockchain has a diverse stack, and I hope that a bank can touch it at many levels.
Bitcoin isn’t easy to use, blockchains are difficult to program, most merchants aren’t accepting cryptocurrency, and it does sound risky to rely on computers and mathematics to govern a currency, but so what?
If you don’t take bitcoin, blockchains and cryptocurrency seriously, I can predict that bitcoin will be to banks what the iPhone was to BlackBerry. Yes, it was not perfect when it came out, and didn’t have a keyboard, didn’t have apps, and wasn’t “secure” for corporates, but so what?
The blockchain is not perfect, but it is that perfect catalyst for business process changes, and this type of opportunity doesn’t present itself that often. The last time it came was with the Internet. Let’s hope the banks see this as a big opportunity for change, not just a small one.
The possibilities that are enabled by the blockchain have a transformational impact, once you put them together.
You can go slow and be left behind, or you can go deep and leapfrog. It is a case of experimentation, but also of determination.
This article originally appeared on Startup Management, an edited version has been reposted here with permission.