Back to the future for banks
As most of my regular readers know I like to look at what the future holds for banks and how banking experiences will change going forward.
However, to quote Confucius: “Study the past if you would define the future.”
With that in mind, let’s start by taking a whirlwind tour of the history of digital banking and money.
In 1992, NatWest began trials of “stored value cards” – essentially digital cash. By the time I joined in 1995, public trials had already started in Swindon. The bank had created a variety of “digital wallets” to hold and exchange money with other users and retailers.
Although Tim Berners-Lee opened up the World Wide Web for commercial use in 1991, it was not until 1994 that a payment was made.
Having launched their first online shop, it is Pizza Hut that staunchly claims to have conducted the first ever payment online.
In 1995, First Virtual Holdings began processing payments online with their “virtual card”. The payment process involved sending customers an email to confirm purchases and making payment to the retailer once a confirmation email had been received. Even Apple adopted the platform to sell their QuickTime software online.
In 1996, Security First Network Bank became the first internet bank to go live, some two years after CEO James Mahan had the idea.
In 1997, I delivered the first bank based on Java to run on both PCs and the very first Windows CE devices (personal digital assistants, or PDAs, which were essentially smartphones without the phone) for the Co-operative Bank.
I also delivered the first mobile banking application for Woolwich Building Society (later acquired by Barclays) in 1999.
I’m not sure who claims to be the first bank in a virtual world, but I do know that ABN Amro launched their virtual presence in Second Life in 2006. A year later, Ginko Bank was the first bank to go bust in Second Life. This wasn’t surprising as it was paying 60% interest to depositors of Linden dollars, the platform’s currency.
Bitcoin was the first cryptocurrency invented in 2008 and first used in 2009.
Apple Pay and Google Pay were launched in 2014 and 2015 respectively, speeding up big tech’s expansion into the payments space and the integration of payment technology into their ecosystems.
StormPay is expected to launch its “finance as a lifestyle” ecosystem in 2021, which marks the start of fintech’s expansion into the lifestyle industry.
Today, there are hundreds of digital currencies and many central banks looking to digitise their fiat currencies.
I think we’re pretty much up to speed now. So, what can we learn from the past?
I guess it’s easy to spot that we have a long history of digitising money and banks. While traditional banks are perceived to be “legacy” or “slow”, many have been at the forefront of innovation, and others have been very fast followers (in the UK, three UK banks launched their internet banking solutions a year after Security First Network Bank: Royal Bank of Scotland, Nationwide and Co-operative Bank).
I believe the key benefits for customers are reduced cost, increased convenience and greater choice / innovation. For me, Uber is a prime example of all three benefits.
Looking to the future from a customer perspective, I’d like to see:
- Direct payments anywhere in the world – the cost of sending money across countries is still too high. Sending $100 to some countries can cost as much as $30!
- Global currency – linked to the previous point, having a globally accepted digital currency is a compelling concept.
- Micro-payments – today, cryptocurrencies allow the ability to fractionalise money, which could facilitate new business models. For example, you could pay 0.01 cents for every word read, or every second of music listened to, and so on.
- Smart payments – another interesting concept, this is the ability to assign payment conditions and automate transfers based on those conditions being met. For example, a user could pay $5 as soon as 5 hours of music has been listened to, and so on.
As I’ve written before, technology is moving at a pace, however mass user adoption takes time.
During this time, there is much to be explored and developed by banks, and there is still plenty of time to create a sustainable plan.
I’m not saying there isn’t a huge tsunami of change on the horizon, I’m just saying that now is the best time to plan and explore the future before the wave hits.
About the author
Dharmesh Mistry has been in banking for 30 years and has been at the forefront of banking technology and innovation. From the very first internet and mobile banking apps to artificial intelligence (AI) and virtual reality (VR).
He has been on both sides of the fence and he’s not afraid to share his opinions.
He is CEO of AskHomey, which focuses on the experience for households, and an investor and mentor in proptech and fintech.
Follow Dharmesh on Twitter @dharmeshmistry and LinkedIn.
Read all his “I’m just saying” musings here.