The Great Transition: The Personalization of Finance is Here is an engaging and thoughtful book on how the trend in the “personalization” in an increasingly interconnected and online world will potentially shape the infrastructure of finance in years to come, creating efficiencies and empowering individual choices. Simply put, it is not only a vision of the future but an encyclopedia of what is currently happening in the digital world. Like all encyclopedias, it inspires the reader to learn more. In doing so we also are motivated to question some of the author’s prognostications. That is a sign of the quality of this book.

Emmanuel Daniel has been very perceptive in his analysis that market disruptions can be catalysts for positive change. The electronic and virtual worlds, coupled with the information economy, may generate new goods and services which none of us can yet imagine. All these unborn products may ultimately become online markets. His admonition that the genius will “not be in the sophistication but in extreme simplicity” is typical of the wisdom that he periodically shares with the readers.

With the evolution from Web 1.0 to Web 3.0 (the move to a “permissionless” and decentralized web run on the blockchain), as greater communication between machines (the “Internet of Things”) becomes more prevalent, they could be used for a variety of applications and new products. The pace of innovation in the space continues at a staggering rate. What insights do we have from other markets which at one time were permissionless environments? The personalization of finance will certainly include new goods and services based on externalities and new digital goods and services. Environmental goods and services are one obvious example. Art is another. Even now, the need for a standard designated clearing organization (DCO) is being debated.

When Emmanuel gives examples of existing goods and services, he avoids being dense. His description of community currencies is clearly written, as is the assertion that the DeFi model is “going down the path where anyone can share a ledger and simultaneously create, add, contribute, issue or trade in financial products.” He has great clarity, and his thoughts are easily accessible to the reader. I also particularly enjoyed his incorporation of academic research, such as David Ronfeldt in the section, “From Tribes to Networks”. Some might argue that this is distracting but this reader liked it.

I felt a connection to this book because as a young academic at Berkeley in the 1960s, I designed an all-electronic, for-profit commodities exchange. The technology and the concept were too early. It took another three decades for both electronic trading and demutualization to become ubiquitous in financial markets. The paradigm has now changed due to new technologies that can speed up this process and take us into new and exciting realms. Although he uses the example of Lloyd’s exchange (while one could argue that the trading of risk was already embedded in stock index futures in Amsterdam in 1605), and there is some reference that the Stockholm Stock Exchange was the first exchange to be demutualized with no mention of for-profit futures exchanges, this should not distract from the point he is making.

I fully enjoyed the history and the way forward he provides as both an academic, a practitioner and inventor of new markets and from the perspective of an author of a recent book on electronic trading and the blockchain. His last section, “The Next Financial Crisis”, leads us to wonder about the regulatory regimes that will be required in the age of the personalization of finance.

Emmanuel's book can help guide readers through the history, development, and exciting prospects in this new electronic world where the individual is front and center. From its use of the ice trade near the beginning as a teaching tool to the policy challenges of ring-fencing banks near the end of the book, it helps inform and guide us to think about problems in a new way. It is a highly readable and encyclopedic narrative on the current and future digital world where these new disruptive technologies, processes, and inventions can help ‘leapfrog’ entire societies and individuals in the years to come.

This is a tough book in the very best sense of that word. Readers should be prepared to pay serious attention to complex issues of fundamental social and economic importance.

Unlike many whose familiarity with a particular status quo induces a sense of comfort in their thinking about the subject, Emmanuel Daniel builds on his lifelong study of the financial system not to just confront the hardest questions that have been raised about it since the crisis of 2008, but to formulate newer and more profound ones.

He has for decades been a trusted source of expertise about banking in its most expansive definition. I met him, in fact, through his global response to requests for information about American regulatory policy after that upheaval. Shortly after my retirement from Congress, he included me as a speaker in conferences of regulators and banking officials in Asia, Africa, and the Middle East.

But even as he organized these expositions about the past and the present, I observed that he always stressed to his audiences the importance of thinking ahead about how the financing of economic activity would – and even more importantly, should – evolve. This book is an elaboration of that challenge.

I use the word “challenge” deliberately. This is a tough book for those who are complacent about the stability we have seen in the banking system over the past decade. Having fixed many of the problems that caused the crash of 2008, what we have put in place should be a foundation for a focus on preventing future shocks, rather than an occasion for self-reassurance.

One of the most profound lessons of 2008 is that failure to adapt the economic, legal and regulatory frameworks that govern the financial system to fundamental shifts as they are occurring – and well before they have taken root – is the only prudent strategy.

He is appropriately tough on those seeking a shortcut to understanding the role that digital currency should play. Too much current public discussion is on the near-term speculative aspects of monetary digitization and the assets that are created from them. He points out that digital currency will shape and be shaped by the changes coming to the financial system, and that will have grave consequences at a broader level in society.

Having chaired the Committee of the US House of Representatives that had a leading role in dealing with the crisis of 2008, I commend Emmanuel’s analysis to my successors as they discharge their responsibility to minimize future turmoil and cope with it when it inevitably comes.

I have one potential dissent. I agree with Emmanuel about the forces that will enhance the financial system by reducing the need for intermediation. I know he does not predict the withering away of conventional banking, but I think that the willingness – and ability – of significant numbers of people to dispense with the current level of services banks now provide may be overestimated.

Harnessing the potential of digitization to improve the ease of transactions between and among large economic actors has already begun to show its worth. But for the foreseeable future, the majority of individual and small organizations that rely on financial institutions to help manage their dealing with others will continue to need that help.

Emmanuel has provided some ideas of how the traditional bank might evolve over time, but the challenge for banks is to serve both sets of needs. (In the interest of transparency, I note that Signature Bank of New York, of which I am a director, is a pioneering example of how to do this.)

Emmanuel has performed an important service in describing the imperatives that are reshaping the financial architecture that undergirds our economy. As policy-makers undertake the difficult job of ensuring that the rules keep pace with this evolution – ending the pattern of severe regulatory lags that has been so demanding – this book has a very important role.

There are two types of books currently on the market today—those that predict the demise of banks due to changing technologies, and those that predict the demise of cash resulting from the development of digital currencies. The Great Transition: The Personalization of Finance is Here creates a new category. This isn’t simply a book about banking or a book about money.

Instead, it’s a book about the “financialization” of everything—how the value of a real asset is increasingly based on data about the asset, not the asset itself—and the banking industry and societal implications of this change.

Like other books, there is a discussion of technologies like cryptocurrency, APIs, and blockchain. But unlike other books—which often just proclaim the technologies’ ascendency and predict they will “change the world,”—The Great Transition goes behind the scenes to define the anatomy of innovation and why technology will lead to a fundamental reimagining of financial products and cause today’s institutions to crumble.

While the book explains the transition of the financial services industry resulting from technological change, it’s an important book for anyone trying to understand the impact of technology on society, as we go through the “great” transition from tribes to institutions to markets to networks.

Emmanuel Daniel’s “The Great Transition” is extensively researched, an encyclopedia of the past, the present and possible future of the financial services industry. Based on his decades of experience as a worldwide consultant, especially in Asia, he describes how the financial industry’s drudgingly slow and glacial transition to the future will accelerate at warp speed in the digitized world of tomorrow. He describes what is going to happen, why it will occur, how it will proceed, and what you have to do to be successful. Digitizing existing products is not the answer, he says. The products must change, be personalized, and be device agnostic. Daniel’s book is a must read for bankers and financial services intermediaries who do not want to be intermediated!

I appreciate that the last thing people want to read about is another banker pontificating on Banking, but I ask for forgiveness: in setting up SC Ventures I’ve been on a learning journey from a banker to what some of my friends call a “reformed banker”, specifically meaning that I am deeply preoccupied with the societal impact of Banking.

This has made me more curious about the future, meaning attempting to address the question of how Banking will address societal expectations not just today but also for decades to come. Such learning journey has made Emmanuel and myself kindred spirits. We don’t know the future, but we can try and use our experience to reflect on a truly “connected world”, with a “rewired banking DNA” at the heart of it.

Historical context and technology

The historical context for “The Great Transition” is the beginning of a new era, what some call the “age of information”, where Technology fundamentally changes the way we interact on the planet, creating a truly connected world of individuals. This prediction is at a minimum plausible, and as Emmanuel reflects on the implications for banking specifically, we could broaden these observations to business and society at large.

Beginning with Technology, Emmanuel appropriately focuses on some of the recent trends, including Web3 and the Metaverse. He rightly notes the importance of IOT being embedded in our future lives - I might add in integrating physical, informational (metadata), as well as obviously financial flows, opening new horizons for supply chains and commerce - and queries whether “peer to peer financing“ might succeed the second time around thanks to 6G?

I would broaden this statement and observe that the infrastructure currently developed for gaming (edge computing and low latency, or virtual reality hardware) will ultimately become pervasive.

For a long time, gaming and adult entertainment may well have been the main commercial use cases for the internet, and so the market invested in building infrastructure for the internet, thanks to such lucrative use cases. We take this infrastructure for granted now and have come a long way in terms of other applications!

The analogy applies to gaming and the Metaverse today: we could also argue that cryptocurrencies are currently the only commercially viable use case for digital assets (other than coins in gaming). But as we build infrastructure for them (custody, settlement, exchanges), it will also serve other future use cases, as cryptos will continue to exist whilst other types of digital assets are likely to dominate (and while I am doubtful that “stakers can earn 8-20%” indefinitely, I would agree that new sources of income are and will be uncovered).

So overall, a great point made about technology and infrastructure being developed today with a specific purpose, which is likely to be leveraged across many more use cases in the future, the majority of which we have yet to imagine.

At this point Emmanuel takes the view of a banker and argues that Finance “will be central to the architecture of how we interact with each other” (by opposition to being an afterthought in the platform era).

I am actually not sure how central Finance per se will be to such architecture, but we certainly agree that Identity will, and we again agree that whoever “masters” identity will control finance…

As Emmanuel reflects on “deception”, we could have pushed the science fiction just a bit further: in the Metaverse, we’ll assume several identities, represented by multiple avatars - just like we assume different personalities today depending on the circumstances.

We could also reflect on “avatar singularity” - meaning at which point do we care about our avatar(s) more than we care about ourselves (the novels “SnowCrash“ and“Ready Player One” have foreseen that moment)?

This question is relevant in Finance because at that time, we’ll protect our avatars’ identities, as well as spend money on our avatars, more so than we do for ourselves!

So now the question dear to our hearts is - what are the implications of all this for the banking industry in particular?

Banks and Fintechs

This topic starts with an interesting conversation about banks’ business model, historically focused on deposits. We could ask what is a deposit, be it retail or corporate, and importantly what will it mean in the future. Are we simply rediscovering physical bank vaults where the mere safekeeping of keys for tokens or cryptocurrencies is akin to value preservation?

Emmanuel argues that banks have “squandered the API opportunity” - I agree for now, however it is not that banks are evil or stupid and the squandering isn’t limited to just financial institutions.

This example goes to the heart of why it is so hard for established corporations (including banks) to adopt business models they weren’t designed for. Banks wouldn’t do it, simply because their business model and vertical set-up (in product or business lines) is in contradiction with the horizontal set-up of platforms.

New ventures or “Fintech entrants” may well provide the Darwinian adaptation required. But importantly, and with them, some banks will evolve too: SC Ventures was set up with the conviction that transforming Banking was going to happen both in and outside the banks, and the rationale for “outside” (meaning in partnership with Fintechs but also creating new ventures) was precisely the business model argument above, i.e. the fact that banks needed to experiment with new and different ways of doing business, but could not adopt fundamentally different business models inside the existing organization, hence the need for independent ventures.

This leads us naturally to a reflection about Fintechs, are they the next generation of financial services? I might have posed a more granular definition of Fintech, differentiating for example between the ones aspiring to replace the banks or fulfil finance functions vs the ones wanting to provide services to such banks.

I also do not think it is true that Fintechs who are a vendor to a bank cannot scale because they are bank-specific: the winners tend to scale across multiple banks and serve the broader industry (and yes, other Fintechs may well fail to scale for other reasons, which is normal…).

Lastly, I have met many successful founders who come from a range of backgrounds, not just failed bankers, which may be a bit dismissive or too generic a statement - but let’s not shy from a bit of controversy!

Having said the above, I would broadly agree with the financial analysis of Fintechs: it is all in the balance-sheet… If we account for the difference between “technology vendors to banks” and Fintechs becoming financial institutions, it is clear that the latter are “finance companies with a technology twist”, which is a very different analysis.

The pressing issue with these in my mind is however not that VC money is too expensive per se as argued in the book (not all VCs are vultures, but more likely rational investors aspiring to get paid for the risks they take), but rather that such “new” finance companies are essentially funding debt with equity money.

So when a “next Gen” Fintech makes loans to the unserved, financed with expensive equity, this is fine for the first loan and to get a track record, but if such loans are not financeable at some point with proper debt, then the balance-sheet of such finance company will not be sustainable in the long run. I believe Emmanuel is however spot on in his analysis of the flaws of BNPL, specifically including their cost of lending - and I did appreciate the insightful China examples and perspective.

A last point on Fintechs: Emmanuel told me a few times about how SC Ventures may well be unique in our approach to partnering with Fintechs, explaining his pessimism on Fintechs’ ability to scale while serving traditional banks. There is a hack though, it’s called empathy.

Empathy, contrary to common perception, isn’t about being “nice”, it means the ability to understand someone else’s position. Fintechs need to understand the requirements of the banks they are dealing with, including their regulatory constraints.

Also, banks aspiring to partner with Fintechs need the empathy required to appreciate that they are big, have plenty of time, money and options - whereas Fintech startups tend to have none of the above options.

Accordingly, the formula to deal with them isn’t one of a conventional vendor relationship - this understanding opens new horizons for banks hoping to be on the right size of evolution.

Society and the future

Beyond Banking and Fintech, I thought the book was at its best when reflecting on the broader societal themes associated with the age of information, or a “truly connected world”.

Emmanuel built (unknowingly) on James Dale Davidson and Lord William Rees-Mogg, whose observations on the consequences of the Information Age were first exposed in 1997’s “Sovereign Individual”.

There was no Metaverse and no DeFi then… but the revolution described by the two authors underpins his narrative of transition in finance, and we can now reflect with Emmanuel on the tremendous implications of DeFi, its impact on Central Banks, financial institutions, its consequences for policy makers and regulators: in summary, how our world is going to change.

In this context, I found the discussion on CBDC vs Stablecoins particularly interesting, leading to the conclusion that CBDCs ought to fail, as they struggle to provide interoperability, let alone keep up with technology and evolution in DeFi.

Should China however “insist” on its CBDC, while CBDCs could “lose out” to real DeFi in the West, we might witness the most important bifurcation ever seen between West and East? Or would the world be even more fragmented?

Like the authors mentioned above, Emmanuel researched the life of Gutenberg: was he the “trigger”, or just the manifestation of the “Age of Information” of his time. We could ask ourselves why Gutenberg actually printed the “Gutenberg Bible” - but more importantly, what would he print today? If his endeavour precipitated the decline of the main institution at the time (the Church), what is again the analogy today?

More importantly still, Emmanuel reflects on the implications of such New Age for Finance. He may have omitted one of the good historical examples of a banking business based on imperfect information: Trade Finance for the last 1000 years has rested on asymmetry of information between buyers & sellers (and it isn’t actually that different today).

The question would be, does this really change in a truly connected world? Should we be thinking of a new and reinvented Trade Financing business, revolving around the mastering of identity, or tomorrow’s KYC?

Some other gold nuggets in the early pages, where Emmanuel reflects on “Energy being the currency of universe”, in which case, money is actually the (lithium) battery equivalent - and finance is the power train…

We could push further and reflect on the evolution of battery technology, where sensors on cars feed AI, optimizing battery usage hence making the battery smaller and more efficient: no doubt this analogy applies to Finance today.

Emmanuel also muses that “there is no comptroller of currency in nature”. Well, I think that yes there is - it is called the “law of entropy”! What is the law of entropy equivalent in finance? The debate here: are we right to institutionalize the comptroller of currency in the context of Finance, when the “financial law of entropy” does such a good job?

The next crisis

We inevitably get to reflections on what the next crisis will be: we banking industry are so good at solving for the last crisis - less good at anticipating the next - Emmanuel is right to pause and reflect on it.

Emmanuel thinks of the war in Ukraine as the first war, or significant crisis, in a connected world. I would say not exactly, we could argue it was actually WWI. The “peak of globalization” (adjusting for historical GDP data) might have been 1914, and it never quite recovered from WWI and II, notwithstanding the last 50+ years of relative increase in globalization (minus the last three…).

There are nevertheless lessons to learn here, notably that the progress which people at the time took for granted could indeed “mean-revert”, but also how devastating a crisis can become in the context of the connections which the world has established, just as we have seen recently with dislocated supply chains and impending food crisis.

Beyond the food and energy crisis everyone’s talking about at the moment - and specifically as we reflect on a “truly connected world in the age of information” - I could think of a few other things:

• A crisis associated with individuals’ “identity”
• Decline of nation states as an institution, as they no longer fulfil their societal functions
• Reactionary forces of the nations: war of the real against the virtual, but also fragmentation, erection of walls and borders
• Poor vs rich disparities in the age of information - populism on back of it, but in a connected Metaverse context
• And a topical one at the moment: forever stagflation

Some of these may just be for another book. In the meantime, I guess it was about time somebody derived the consequences of the Age of Information in the context of Banking: this is a great first attempt of its kind, to be undoubtedly followed by numerous debates and iterations, especially as our industry evolves

Note : Alex Manson is the “founder” and global head of SC Ventures, the venture capital arm of Standard Chartered Bank, one of the few successful bank-owned VC initiatives in the world.

The story of ice

I use the story of ice, in the words of Richard Sandor “as a pedagogical tool”, to describe what I mean by the “personalization of finance”. Today, we get ice from the refrigerator when we want it, how we want it. It is difficult to imagine that there was a time when ice was sawn out of the lakes of Boston and sent to faraway cities on horse drawn carriages.

Well, money is the same way. The way in which the money is transmitted globally today is totally out of our control, subject to inflation, trade-related exchange rates, bank charges, fraud, government policies and a host of other factors. It is a wonder that the value of the money that finally reaches the end user is nothing close to the value that was originally created or intended (which gives me the excuse to discuss how value itself is captured and shared).

The phrase “personalization” of finance that banks use today means something totally different from what I discuss in the book. Most banks mean that they are able to provide a highly “personalized service” to their customer to make the customer feel as if their products were designed exactly for him or her.

The “personalization” I am talking about in my book is taken to a whole new level, where the user has full control over the origination and use of finance, who he or she chooses to transact with, how, when, why, what. Banks as we know them to be today are not even in the picture. I do allude to cryptocurrency, but again, not in the way it is discussed today.

The magic of cryptocurrencies is not that bitcoin was able to shoot up to $65,000 in price, but that each and every person in the world is now able to issue a cryptocurrency of their very own. Now, whether the “currency” that we issue will be accepted by anyone else is another question altogether. The world is today going through a process of deciding which cryptocurrency to accept and which to reject, this process will take us into the next hundred years and over time some clear guidelines will appear. When we hear about stablecoin frauds and bad algorithms, we are just at the beginning of that journey of learning which ones to validate and which ones to reject, now that anyone and everyone can issue a crypto.

The refrigeration technology that transformed the ice trade was found in a synthetic chemical called “chlorofluorocarbon (CFC) that made refrigeration possible. I go into trying to discussing what the “chlorofluorocarbon of finance” should or would be.

The financialization of everything

As more assets, from mortgages to cars and shares are represented by data, and that data become “non-fungible” (that is specific to that asset and not interchangeable) because of technology like blockchain, and as more of our every day lives, from driving an autonomous vehicle to running a factory are captured and managed by data, almost everything we do will be represented by data that we can slice and dice in many different ways to give us meaning.

Even as all that data is digitized, the financial markets will look for ways to securitize them and then trade on them, and even trade on derivatives of data, and derivatives of derivatives. The source of the 2008 banking crisis was the financialised versions of mortgages, not the mortgages themselves. We are going to see more, not less, of this trend in the years ahead.

We will go through a period where the markets will test all kinds of data to see if they can be securitized and traded. We will find that not all data can be securitized and traded. It is this process of continuously testing all kinds of digital data to see how we can financialise them that is called the “financialization of everything”.

But data is a ruthless commodity. Many early technology players wanted to be able to say that data is the new gold. In my book, I point out how in the past 10 years alone, the early data companies have been ruthlessly commoditized despite having very promising starts. Read my book to see why I say that data is actually vegetable.

The mass-amateurization of finance

Here, I am saying that banks totally missed out on the API (application programming interfaces) revolution. Giant businesses from Microsoft to Adobe have modified their business models to generate income from the APIs that their customers create to interact with them. Bankers still think of a “product” as something manufactured inside a financial institution and sold to its customers. We are coming into an age where customers create their own products.

The financial sector totally missed out on the early days of the API revolution. While many other industries opened up their businesses for their customers to generate their own interfaces in order to interact, personalize and use their services, the banking industry instead continued to protect itself against its own customers. The excuse given, and it was an understandable one, was that banks hadto protect their data. But what was not well understood was that bank data is static, historical and increasingly meaningless in an increasingly networked world. For creating products and for ensuring the very security of the banks in a networked world, the live, realtime data outside the bank is becoming more important than the static data that sits inside the bank.

In the process, the banking industry has reduced its well-meaning API vendors into what I call the “patch solution” providers. The banks published a list of problems that needed to be solved on their delipidated systems, and these technology vendors used API-access to try and solve some of them, which was not the intention of the technology. In the meantime, the mass amateurization of finance blazes unabated in industries like publishing, gaming and trading where everybody is a producer of his or her own product or service.

As I discuss in the book, understanding the “mass-amateurization of finance” is important to be able to crack some of the problems that the early peer-to-peer (P2P) and even Buy-Now-Pay-Later (BNPL) have had. These industries might have a resurgence when the industry better understands what it means for customers to design their own products.

The history of innovation

In my book, I spend some time retracing the history of innovation in general, especially in the past 50 years, since the end of Bretton Woods, so that we can be clear about what actually happened in the history of banking. This will help those who are making the transition to the next phase to know what they are dealing with.

In the 1990s, US corporation underwent their most severe “capital-versus-labour” stand-off, and in my book, I explain why capital won. The capitalist “shareholder value” generals took manufacturing and processing to cheaper countries like China and India in order to resist the unions demand for wage increases. This is why wages in the US have not kept up with inflation for nearly 30 years.

The banking industry also had its own version of the “capital-versus-labour” stand-off. The rise of fintechs can be explained in the context of that stand-off, because in many cases, the fintech phenomenon is an outsourcing of bank operating costs to the armies of out-of-job ex-bankers, now able to automate any bank processes on Java programming which inadvertently subsidises the banks and their shareholders.

Understanding the history of innovation also helps us understand the nature of venture capital, and whether it helps choose the next transformational technologies that will define finance. Read the book to find out why I say that in finance, venture capitalists follow and not lead.

The institution crumbles

I loved writing this phrase, “the cookie crumbles”. When I say that banks as institutions will crumble like a cookie, I get a lot of push back from traditional bankers who say that the finance world will still need intermediation, that rumours of the death of banking are premature. I am happy to have all these out in the open for discussion.

Banks are crumbling, from the inside on their balance sheets, and from the outside as new intermediaries replicate what they can do and do it better, cheaper, faster. From the inside, their cost base is being squeezed and they are incredibly asset heavy when the industry is moving towards an asset-lite model. They carry more capital than industries that have more capital intensive assets.

Also, they have considerable difficulty in holding together the governance required to manage complex institutions. I discuss the story of Deutsche Bank, which had its origins as a domestic commercial bank in Germany, and then went on to integrate with an investment bank in London. The culture created, the personalities that drove them and how this story is repeated again and again today. Banks are their own worst enemies.

From the outside, very simply, whatever a bank can do, a teenager can do on self-developed applications in the comfort of his or her home, almost literally. Trading, staking, lending, paying. At the moment, some of these developments are at “geek” levels, which means only computer nerds even understand how to do them. But over time, these applications will become easier to use and with greater processing power and generation Z will come into their own very soon. There is also the discussion on the reddit revolution, thousands of individual investors acting against the institutional players.

I am happy to have this idea debated passionately in any forum. But whether banks crumble or not will depend entirely how they morph and change their business models to suit the demands of the age.

From platforms to personalization

Early in the book, I discuss the fact that we forget that Facebook almost did not make that transition from desktop to mobile in the 2008-2010 period. Today, we see that Facebook is officially in decline and that mobile-native applications such as Tik Tok are on the rise. These transitions are subtle but profound, and still the incumbent players refuse to recognise them until it is too late.

The transition that is to come is from platforms to personalization. The onset of greater data privacy and developments in identity, transactional and blockchain technologies enable individuals to decide who, when and how they wish to interact with, without having to surrender their data to the platforms of today. These, together with token technologies are shifting the power of the relationship from the platform to the individual.

The power of platform players still have a long way to go, there are still platforms to be created in many areas of business and society for many years to come. But the incidences surrounding data privacy, electoral rigging and the use of algorithms for factious outcomes are changing the definition of what a platform should be. Even in the blockchain and cryptocurrency worlds, individuals are increasingly opting out of trading platforms and public wallets, and increasingly using technologies that gives them greater control over their own digital assets. The direction of the trend is clear.

This discussion is especially useful for digital-bank pioneers. Almost all digital banks are not designed to make money even in the current regime. It will become worse as customers personalize finance. Players who are trying to ace the platform game by trying to become platforms themselves have to start thinking about a world where the power of the relationship rests with the individual.

Even as I discuss far-flung ideas that are only in their preliminary stages of development, in my book, I apply those ideas back to current players and the roadmaps they are creating.

The power of the dysfunctional state

When we think about which country or society will spearhead the transformation of finance, history shows us that it was never the most organised state or the most stable banking system that made those transitions. Transitions in finance are always achieved in periods of duress, deep economic stress and turmoil.

The Bretton Wood agreement fell apart because the US could not carry enough gold to support the increasingly trade weighted exchange rates with other currencies. So, it unilaterally walked out of the deal, despite its most eminent economists counselling against such a move. The rest of the world just copied the US in generating fiat currencies that were increasingly based on nothing except perception. Similarly, the reason the US dollar became the global currency was precisely because the US didn’t care how its currency was used outside it’s own border.

Through these and other examples, I make the case that the futures of finance, cryptocurrencies (read bitcoin nation), stablecoins, CBDCs and even the internationalization of the renminbi will be determined from what nation states do during periods of extreme stress, and not from the policies that a congress or a central bank can pontificate on as a rational exercise. At the same time, I am asking the reader to look out for the other dysfunctional states and their influence on what may be outlier technologies today. There are videos on my social media on my visits to El Salvador and other states where I am learning first-hand how new eco-systems are created.

Blockchain, killed in the back-office

There are literally hundreds of bank-sponsored blockchain projects around the world, but almost all of them have been in pilot mode for at least 4-5 years now. I dedicated an entire section to explain why all the projects in blockchain technology in banking today are designed to fail, not because of the technology, but because of the way banks are organised and the excessive remuneration given to their ever-bloated compliance teams.

I also believe that the API (application programming interface) phenomenon in finance also lost its way. Both phenomenon are alive and well in many other industries, from logistics to technology and even social impact projects, but not in finance.

I do not say this explicitly in the book, but if you study the way that financial institutions, including central banks, are organised, I also see that central bank digital currencies (CBDCs) are almost all designed to fail or fall by the way side.

The sheer energy and global manpower that is being put into the design and features of cryptocurrencies and stablecoins makes CBDCs unable to compete with the breakthroughs. In fact, right now, almost all CBDCs are still in their pilot stages simply because their technology teams are merely mimicking the features that are being thrown up in the permissionless world. The CBDCs that have gone live account for less than one percent of the payment transactions in their respective countries.

I will have more to say on this as these industries develop, and you can find my comments in future commentaries, videos and training that I will be giving to disruptors in finance. But the line of thought is already in the book.

The Libor crisis, again

In one of the most passionate section of the book, I make the case that the LIBOR crisis of 2010 was not one borne out of fraud, but by a confusion when a system transitions from one phase to the next. In the case of the LIBOR crisis, the financial sector was moving from its “institutional” to its “markets” phase. I borrowed this idea from an understated intellectual by the name of David Ronfeldt, from a paper he wrote for the RAND Corporation in 1996, in the days when fax machines were still roaming freely on the face of the earth. Today, as society moves from its “markets” phase to the “networked” phase, similar incidences are wanton to surface and they are not because professionals go to work in the morning to defraud their employers.

In the “markets” phase, people trade between each other, and the highest bidder secures a transaction and the seller loses the asset. In the “networked” phase, the asset gains in value the more it is shared. Think about information – it is the only asset that actually increases in value the more it is shared.

Remember, despite all the fanfare, almost nobody was ever convicted for LIBOR, except for one on a matter of technicality, and even that case is currently on review. The problem is that if we do not diagnose the phenomenon correctly, we risk labelling it wrongly every single time and failing to guide the institution to the next phase.

The next financial crisis

Americans have way of framing every major event in the context of a similar event in the past, as they do in sports. The “best score inning since the Red Sox against the Tigers in 1953” is used in finance to describe “the worst banking crisis since the Great Depression.”

This framing of events makes even economists to load their data sets with assets that are similar in Amsterdam in 1663 as they are in 2008 and come up with perspectives that say that “no, this time it is not different.” The euphoria and the public sentiments that feed a financial crisis may not be different, but the essence of the assets certainly does change over time, and it is important to keep an eye on the ball, and not reminiscent a past era.

As I was writing the book, and mapping the transitions that the industry has undergone, it occurred to me that the crisis that the Basel I regime dealt with was fundamentally different from that of Basel II and the assets in the crisis that Basel III was promulgated to protect against was again different. At each stage the asset in banking was moving away from the underlying mortgages to securities and then to markets and then to (read the book). If we extrapolate that into the future, the assets in finance are becoming increasingly more ephemeral. This in tun will have an effect on the conditions that will be necessary to trigger the next financial crisis. Read the book for a more in-depth discussion on this.

Russia and Ukraine

In 2008, the finance industry was caught up with its own woes so much that it totally did not contemplate the technological breakthroughs that were taking place at that time that were going to have a more fundamental impact on its future than the global banking crisis. In the same way, the Russian-Ukraine war as well as other new developments in technology that are taking place today are going to shape the industry we can only imagine today. The Financial Stability Board, the Bank for International Settlement and other agencies charged with ensuring global financial order are in the direct firing line as economic blocs dig in. At the same time, some of the projects that we are caught up with, including central bank digital currencies (CBDCs), may well not match the rhetoric we give them. These might also facilitate non-partisan technologies that no one party can dictate or dominate. I have a list of current developments that we need to put on the table to see where they will play in the next 10 years.

The great transitions

By the time you get to this Key Idea, you would realise that there are actually several great transitions in my book. The main one is the one which I have explained in the “From Platforms to Personalization” Key Idea. The second one is from “Tribes to Networks”, an idea I borrowed from an amazing intellectual who should be given more recognition that he has for his lifetime’s work. I have used both transitions to chart how the future of finance will evolve. We are transitioning from the markets world that we have become so accustomed to, into the networked world.

That is why the people who are still trapped in a markets view of the world cannot understand why bitcoin, a totally useless digital asset, is commanding the attention that it does. In the same way, the people who are “network natives” are often ahead of their time, because every time there is a crisis in the digital assets that they believe in, their faith is shaken. The industry will develop not because one or the other is right. It is already on its journey.