Chris Skinner1_resized
Chris Skinner May 6, 2014

The ‘Red Pill’ Moment for Financial Services

In the movie The Matrix, the hero Neo, played by Keanu Reeves, meets a mysterious man named Morpheus who tells him that he is just a small part of the Matrix and one of its slaves. He tells him that he can become free and gives him a choice of taking a Blue Pill or a Red Pill.

The Blue Pill will allow Neo to remain in the fabricated reality of the Matrix, while the Red Pill allows him to locate his body in the real world and to prepare him to be unplugged from the Matrix. Which pill do you take? I had a Red Pill moment last week.

This is because I present all the time and talk about the forces of change for the future: political, economic, social and technological (PEST). I usually skip over the political and economic because it’s boring to most conference crowds, and so focus upon the social and technological because it’s way more interesting. Then, in a debate the other day, someone said, “There’s a disconnect between the regulatory and innovation agenda.” I went “Red Pill, please,” and now there’s no going back.

What was the realization? It is that we have had a major financial crisis and I don’t cover the political and economic stuff because it’s all about Volcker, Vickers, Barnier, Liikainen, Lagarde, Osborne, Yellen; it’s all about G20, G8, G7, EU, USA, SEC, Federal Reserve, ECB, PRA, FCA; it’s all about Dodd-Frank, EMIR, MiFID II, PSD II, Basel III, UCITS IV, Banking Union, Banking Reform Bill; it’s all about the incredible tsunami of regulation hitting the boards. The entire works of Shakespeare amount to around 800,000 words while FATCA is 900,000.

Consider that the Volcker Rule was originally outlined in a three-page letter to the president. When the Dodd-Frank Wall Street Reform and Consumer Protection Act went to Congress, the Volcker Rule took up 10 pages. When the proposed regulations for the Volcker Rule finally emerged, the text had swelled to 298 pages and was accompanied by more than 1,300 questions about 400 topics. This is not simple. We are desperately trying to reform the banking system to bring back stability.

Now, for the Red Pill moment. Maybe, this is all for naught. Maybe this regulatory stuff is addressing a system that is fundamentally and fatally broken. Maybe this system was built for the last century world of finance. And maybe the regulators and governments have got it all wrong.

You see, while the political and economic agenda is trying to create a stable banking system, society and technology are trying to create a new one. That’s what Bitcoin is all about.

Bitcoin is money without government and no banks involved. It has been created by the WikiLeaks generation as the Wikicoin for the modern world. A modern world that has been transformed by air travel and technology such that anyone can connect with anyone, anywhere on the planet and exchange knowledge, ideas, value and currency. A globalized world that needs a globalized government; not a localized world with a localized government. The government of the Internet is the crowd, and the crowd want to be released from control.

This is potentially a transformational moment or an evolutionary moment, but the key to note is that it is not a transient or quiet moment. For, as governments and financiers work together to address the political and economic issues, developers and technologists are working together to avoid those issues. In fact, while we have a divide between the PE and the ST of the PEST model, we maintain a divide between the regulatory and innovatory aspects of banking.

We split the new world of finance – Bitcoin, iWoca, Kickstarter, Square, Fidor, Moven, m-Pesa, G-Cash, mBank, the Currency Cloud, eToro, Personal Capital, Zopa, Funding Circle, PayPal, Hello, Soon, the Housecrowd and EZBob – from the old world banks – JPMorgan, Deutsche and  BNP Paribas.

The new world banks focus upon the S and the T, and innovate the hell out of the old world banks until, sometime soon, the old world banks will notice that the regulatory agenda took their eye off the ball – the “ball” being “the customer.”

Mr. Skinner is chairman of the Financial Services Club, CEO of Balatro Ltd., comments on the financial markets through his blog the Finanser, and is the author of Digital Bank. He can be reached at chris.skinner@fsclub.co.uk.


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