Emmanuel Daniel is an entrepreneur, writer and founder of The Asian Banker, Wealth and Society and Bankquality.com. In 2022, he published ‘The Great Transition: The Personalization of Finance is Here.’He was also a speaker at the Seamless Middle East show, in Dubai, in May.
Emmanuel, after a career of 28 years in banking you published a book last year, titled ‘The Great Transition: The Personalization of Finance is Here.’ What was the message you were trying to get across when writing this?
Well, what I have been trying to do is challenge financial services players to start creating the foundations for something beyond Seamless, which, in my language is called personalization. When I was writing this book, I needed to make the transition from traditional banking where I made a career of for 28 years into the future of finance which incorporates elements of decentralized finance that are coming into shape right now. It meant I had to imagine how to communicate some fundamentals of the new financial regime that is taking shape today. And the first characteristic of the new financial ecosystem that is coming into being is that it will be personalized.
This theme of personalization is one that comes up in every industry today. What are some of the challenges specifically that come with implementing this into the financial system?
When we talk about personalization, to most people this means the ability to be able to package and deliver a product in a way that the customer will love you. But the problem with financial products is that the customer never wanted a mortgage, they wanted a house. They never wanted an automobile loan, they wanted a sports car. Financial services are a means to an end and increasingly, the role of the intermediary is crumbling. Individuals can now communicate or transact with each other without this and that’s now a reality in decentralized finance.
A lot of the technological advances that are being developed in decentralized finance are being back built into the traditional banking industry and deconstructing banking as we know it even though some regulation and some incumbency is slowing the process down. So, in my view it’s an inevitable process we will eventually get into a personalized ecosystem. And what that means is we need to start thinking beyond seamless banking.
A key part of this concept of being seamless is creating an experience for businesses that is frictionless, both physical and digital. Going beyond this, what does this new ecosystem look like to you?
Well in order to think beyond seamless, firstly, we need to imagine what personalization means, or how to visualize personalization. The example that I use is that of an ice cube. There used to be a time when ice was something you sawed out of the lakes of Michigan or Boston, put it on horse drawn carriages, and transported it thousands of miles to where it wants to be used. But, of course that is completely inefficient today.
Well, banking is like that. Finance is inherently unproductive. The money in your pocket has probably been sold around the world twice and has been subject to things like interest rates, exchange rates, bank charges and other factors beyond your control before it reaches you. It rewards a whole range of intermediaries in the process. A more personalized ecosystem is something that considers all the elements of identity, value, validation and information.
It is one that uses the latest technology to develop and to exchange tokens of value with each other without having to rely on a traditional banking system
The technology around tokenization continues to advance at a rapid pace. One of its defining characteristics is that some of this new technology is built into the architecture itself. What are some things we need to consider around this?
Yes, that is the beauty of some of this new technology. In cryptocurrencies, for example, there’s not been a single breach of a Bitcoin transaction. And that’s because the security is from the network effect itself meaning you need to put it out there and have as many people own it in order to be secure. It is the same with other cryptocurrencies. In order to embrace the network economy and benefit from it we need to be wholly exposed to it. We need to create a new set of institutions and reflexes to be able to operate in the network world because that age of personalization is already here.
The magic of bitcoin, for example, is that we can create our own crypto and transmit value from that. As a result, we now become creators ourselves and its decentralized because we don’t need an intermediary. We just need to enable others to accept our assets or our tokens and that’s another increasingly important element of personalization.
Emmanuel, a lot of traditional banks will be looking at this new technology and will be developing a strategy to stay relevant in today’s world and to meet customers’ changing needs. How do you think banks can start digitizing more effectively?
Firstly, banks need to start seeing their own products differently. Digitization has to focus on more than just selling more products more efficiently. Banks now need to consider the implications if the product itself has to change. If a traditional bank account now becomes a digital wallet and then becomes a stable coin they need to consider what will the business be then? And, to do that bankers need to look at the latest technology without any assumptions of what banking is.
The collapse of Silicon Valley Bank, Signature Bank, and First Republic shows that the deposit business is now under stress. For many years, technology has helped them to secure as many deposits as possible in the safest and the cheapest way possible.
But the whole idea of banking is actually not seamless. In fact, banking thrives on being not seamless. It thrives on being an intermediary in slowing down the processes to sit on the deposits, to create floats, and to create multiple intermediaries all of whom get a percentage of the action.
Now we’ve arrived in a world where a crypto transaction is 24/7. It’s instant and it punishes anyone who deals with it, not just banks but the new players too. And so a whole new set of operating principles need to evolve in order to get a better understanding of what finance means.