I had a really interesting conversation with Chris Barker, Head of Digital and Engineering for Royal Bank of Scotland. As usual, the conversation moved around data analytics, deep learning, artificial intelligence, building enterprise data systems, separating content from processing, re-platforming the back-end infrastructure and core systems and more. I’ll write more about that stuff tomorrow, but the bit that intrigued me is when Chris said he can see the idea of a bank account disappearing.
Now this builds on an idea I’ve already blogged about – the digital identity on a shared ledger concept – but this went further, so here’s how and why ‘bank accounts’ are going to be unnecessary in the very near future.
In a physical world of money and travel, individuals needed very safe and secure places to store value, and trusted authorities to issue them identities. This meant that Governments had to provide you with identifiers such as a passport and driving licence, and banks had to have those proofs of identity to open an account for you. That account was guaranteed to be managed on your behalf as a safe and secure store of value. You had other issued services, like health certificates and loyalty cards, because these proofs of access and identity and stores of value were all being managed through the physical exchange of value, goods and services.
Now we live in a world that is turning digital, and digital means democratisation and decentralisation. We are putting power into the individual’s hands and so, rather than having multiple identifiers from a central authority who issues you with proofs of access, you now have your own digital bucket for which you can issue access to central authorities on an as-needed basis. There are no multiple external and centralised stores of your proofs, just one decentralised store that you manage.
If that happens, the contention is that the idea of a bank account that is stored externally by an authority who can centralise and transact on your behalf becomes irrelevant.
Think about it: you have this deposit account system, for you to give your things of value to a trusted external third party who manages, stores and exchanges your value tokens on your behalf. If we have moved to a federated, shared, open digital ledger, why do you need a trusted third party to look after your identifiers and proofs? Why do you need a central authority to deal with your movement and needs?
These are fairly fundamental questions, and does lead to a conclusion that is quite uncomfortable and disturbing, for some, but exciting and a great opportunity for others. The conclusion is this.
Banks, as I have maintained for some time now, were built in the last century for the physical distribution of paper in a localised network based upon buildings and humans. To manage that physical structure, our identities, proofs and store of value had to be validated by centralised authorities who are trusted to provide these identifiers, such as banks and governments.
But now, we live in a world where value and identity is being digitised to support the digital distribution of data through a globalised network focused upon software and servers. To manage this digital structure, our identities, proofs and store of value has to be validated by the individual as a democratised, decentralised structure cannot operate if a centralised third party has to manage them.
This will be the most significant change in the world of finance if true: the movement of identity to a federated, shared open ledger system (blockchain protocol if you prefer) where everyone can be trusted because the internet validates who owns what and can trade with whom. As Bob Greifeld, CEO of NASDAQ said last week, this technology enables me to trust you without knowing you. That can only happen if we own our digital selves and, in owning the digital me, I won’t need a bank account.
The first comment I received on this blog entry is that my owning the digital me sounds like "storing your pound notes under your own mattress". Unfortunately this misses the point, as storing notes under the mattress is a physical metaphor. In this digital me world, my money is just data and I can store it where it's most secure. That probably is not in a bank account, but in a Trezon or Ledger wallet. The key is to consider that you are now dealing with secure data stores, not potentially insecure bank accounts.