Chris Skinner is a banking and technology veteran who serves as the chairman of the Financial Services Club, a group created in 2004 to address the future of companies that serve financial markets.
I’m often asked how quickly the changes I outline will take place, and my answer is between 10 and 20 years.
The building of the real-time, almost free financial network on the Internet using blockchain and mobile will take about a decade at least before it becomes mainstream. “Oh,” some go. “That’s a way off. Can we talk about something happening sooner?”
That’s an interesting reaction, as sure, we could talk about how Apple Watch payment apps aren’t working or the big deal with Chase Pay, but c’mon. I’m not talking about incremental innovations here, but fundamental ones.
The rebuilding of whole financial markets using shared ledgers. The inclusion of 7 billion people in the financial network through mobile. Those are the big ticket items. Another user of Stripe is interesting, but it’s not the massive change we can see coming downstream.
So why is this fundamental change going to take 1o years, at least? Because that’s how long any major change takes to become mainstream due to “the Waterfall Effect”.
The Waterfall Effect is exactly that: the cascade of flowing change from idea to implementation to acceptance to mainstream. And you have to remember there are many players in play here.
Starting point
It starts with a new technology, such as the blockchain shared ledger protocol.
The technology then has to be built into something robust and new providers – Blockapps, Chain, Chainalysis, Case, Circle, Coinbase, ConsenSys, Epiphyte, Ethereum, Eris, LedgerX, R3CEV, Ripple, Symbiont, TradeBlock and more – are created to innovate and to allow this technology to be adopted.
Then, the large incumbent technology providers start their programs to join these new innovators and bring them into an architecture that works for their bank clients.
Some say the incumbent technology companies move too slow.
In fact, some believe that the real problem is not the banks’ legacy systems but their legacy providers, but hey, let’s not go there. Eventually, the providers get it, and adapt and adopt the technologies into their frameworks and architectures.
Hitting primetime
Eventually it’s ready for bank prime time.
Then that’s another story, as now the banks have to adapt and adopt the frameworks and architectures from their incumbent providers and innovative start-up partners.
That takes time, and different banks move at different speeds depending upon the use case and their ability to change.
Let’s say this takes about six years, and that’s how long it’s taken to get shared ledgers from Satoshi Nakamoto’s white paper to serious use cases being adopted by banks as proof of concept (POC).
That’s still a way off from POC to implementation and mainstream use. The latter is still 3-5 years away in many cases.
For the sake of argument, let’s say it takes a decade to get from the white paper to mainstream incorporation.
Consumer change
OK, so now we’re getting somewhere, but we’re still not there as the corporations and consumers haven’t been touched yet. Often a bank can innovate and sometimes even innovate fast, but then their customers have to change too.
Corporates will adapt and adopt a technology that will reduce costs and improve processing but, a bit like the banks and their incumbent technology providers, the corporates also have legacy systems and legacy providers who have to adapt and change.
Give that another five years and then, finally, consumers can have the service. But do they want it?
According to many of my bank friends, every time they update their bank apps with new features and changed interfaces, their Net Promoter Score (NPS) goes down.
This is because 80% of customers don’t like change. Shoot.
So the consumer takes another year or two before they switch onto the new cheaper, faster service. And hey, we’ve got there.
Reaching acceleration
But this waterfall effect – new technology, startup developers, incumbent providers, main markets of usage, clients of main market users and, finally, customers of clients – means that any major technology change takes at least a decade to maybe three decades before it gets mainstream.
After all, the mobile telephone was invented in 1973 but took almost 30 years to become mainstream.
We talk about how things are moving faster – apps go viral in seconds – but these are things that move once you’ve changed the underlying architecture, and that’s why groundbreaking change takes decades.
Once you’ve made the change however, everything that sits on that underlying architecture can move at light speed.
This is why the blockchain will take another decade before it is mainstream, as it’s changing the foundations, the rails, the roads of finance.
It’s not just a bit of froth on the foundation, like most of the apps out there.
This piece originally appeared on the Financial Services Club Blog and has been republished with the author’s permission.
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