Reinventing financial services (Lift11)

Every company will face a confluence of internal and external forces, often unanticipated, that will conspire to make an existing business strategy unviable.

- Andy Grove

In a world where everything can be expressed as 0s and 1s, are the traditional ways of defining markets and financial services still relevant?

What new business models and industry structures are likely to emerge?

What core services does finance provide?

What would an app store for finance look like?

Industrial Economy

1771:

The Industrial Revolution

1829:

Age of Steam & Railways

1875:

The Age of Electricity

1908:

Age of Mass Production

1937:

The Nature of the Firm published by Ronald Coase

1950-1970:

Most of our current leaders were born.

1955:

Bill Gates born.

This is the last generation of the industrial era.

1968:

• Intel founded
• Bill Gates first computer

1971:

Intel 4004

(first complete CPU on a chip)

1971:

Age of Information

1973:

Page and Brin born.

1975:

Microsoft founded

1984:

Mark Zuckerberg born.

1990:

World Wide Web

1996:

Two Stanford graduate students launch research project on algorithmic search

2004:

Facebook founded

2006:

Amazon announced AWS

2006:

Age of Cloud Networks

2010

2010:

Facebook has 500 million users

Information Economy

how to define the sixth paradigm?

cloud computing

EaaS

exchange ubiquity

marketplaces in everything

digitization

ISIN: An International Securities Identification Number (ISIN) uniquely identifies a security. Its structure is defined in ISO 6166. Securities for which ISINs are issued include bonds, commercial paper, equities and warrants. The ISIN code is a 12-character alpha-numerical code that does not contain information characterizing financial instruments but serves for uniform identification of a security at trading and settlement.

ISBN / ASIN: The International Standard Book Number (ISBN) is a unique numeric commercial book identifier. The Amazon Standard Identification Number (ASIN) is a unique identification number assigned by Amazon.com and its partners for product identification within the Amazon.com organization. Each product sold on Amazon.com is given a unique ASIN. For books with 10-digit ISBN, the ASIN and the ISBN are the same. Books without an ISBN and other products are also assigned ASINs.

ZSIN(?): Zoopla Standard Identification Number - a unique identification number assigned by Zoopla.co.uk for residential property identification...

{

api

"new optimal" industry / corporate structure (?)

• nothing wrong with "dumb" pipes
• real economies of scale
• cashflow driven capital structures

• a substrate for an ecosystem of services
• selling trust, creating markets
• economies of scale

"well built developer platforms are the future of every industry" -ReadWriteWeb

• edge innovation, rapid adaptation
• dis-economies of complexity
• low capital intensity

what are the fundamental services a financial system needs to provide?

• facilitating trade?
• allocating resources?
• storing value?
• transferring value?
• accounting for value?

so what does a financial stack look like?

information and communication infrastructure

balance sheet

securities

exchanges

payments

risk management

banking

capital management

insurance

trading

credit

wholesale financial services

marketplaces

"traditional" industry / corporate structure

BaaS

P(ay)aaS

RMaaS

FXaaS

so where is (JP Morgan)'s AWS?

why doesn't [UBS] have an app store?

are Facebook Credits the future of payments?

innovation in finance is welcome > different than "financial innovation"

thank you

www.anthemis.com / www.parkparadigm.com

@anthemis

? ? ? ? ? ? ? ? ? ? ?

api

}

applications

services

retail financial services

api

“...each of these revolutions is accompanied by a set of ‘best-practice’ principles, in the form of a techno-economic paradigm, which breaks the existing organizational habits in technology, the economy, management and social institutions.”

“ A technological revolution can be defined as a powerful and highly visible cluster of new and dynamic technologies, products and industries, capable of bringing about an upheaval in the whole fabric of the economy and of propelling a long-term upsurge of development. It is a strongly interrelated constellation of technical innovations, generally including an important all-pervasive low-cost input, often a source of energy, sometimes a crucial material, plus significant new products and processes and a new infrastructure. The latter usually changes the frontier in speed and reliability of transportation and communications, while drastically reducing their cost.”

20th century bank

digital platform

20th century insurer

carlota perez: technological revolutions and financial capital (2003)

Reinventing financial services for a digital century:

{

}

A new stack for a new reality

Lift 11, Geneva

4th February 2011

sean park, founder

anthemis group

physical platform

transaction data

reference data

identity / trust

vertically integrated

bytes

"Multisided platforms cater to two or more distinct groups of customers. Members of at least one customer group need members of the other group for a variety of reasons. Platforms help these customers get together in a variety of ways and thereby create value that the customers could not readily obtain otherwise."

Ronald Coase

(symbolic starting point (?):

launch of S3 and EC2 in 2006)

platforms

• There are a number of transaction costs to using the market; the cost of obtaining a good or service via the market is actually more than just the price of the good.
• Other costs, including search and information costs, bargaining costs, keeping trade secrets, and policing and enforcement costs, can all potentially add to the cost of procuring something with a firm.
• This suggests that firms will arise when they can arrange to produce what they need internally and somehow avoid these costs.
• There is a natural limit to what can be produced internally, however. Coase notices "decreasing returns to the entrepreneur function", including increasing overhead costs and increasing propensity for an overwhelmed manager to make mistakes in resource allocation. This is a countervailing cost to the use of the firm.

...digital information exists as one of two digits, either 0 or 1. These are known as bits (a contraction of binary digits) and the sequences of 0s and 1s that constitute information are called bytes...

David S. Evans, Andrei Hagiu and Richard Schmalensee

...a (computing) platform is a framework on which applications may be run...

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Deposit Corp

markets

• "...(complex adaptive systems) consist of a hierarchy of components, such that, at any level of the hierarchy, the rates of interaction within components at that level are much higher than the rates of interaction between different components. Systems with this property are called nearly decomposable (ND). The explanation for the ubiquity of the ND property is that under the usual conditions of natural selection, ND systems will increase in fitness at a much faster rate than systems that do not possess the ND property."

• ...at any level of complexity, ND systems will evolve much faster than systems of comparable complexity that are not ND...

• ...architectures that are not ND will simply be unable to compete successfully in rate of adaptation, hence ultimately in fitness, with ND architectures."

Herbert Simon

source: Amazon AWS (data), timetric.com (graphic)

Data Safe LLC

...the concept of a market is any structure that allows buyers and sellers to exchange any type of goods, services and information...

Payments & Co.

horizontal integration

Identity Ltd.

Trust Inc.

accelerating change and complexity

60 years (?)

Reinventing financial services for a digital century:

A new stack for a new reality

2009:

GM Bankruptcy

2008:

Global financial crisis

sean park, founder

anthemis group

200 years

Lift 11

Geneva, Switzerland

Friday 4 February 2011