Sometimes, the way information technology impacts an industry is expected. But sometimes, it's quite unexpected.
When the Internet first burst into the mainstream, it was immediately clear that travel agents had problems ahead. But few could have predicted that the Internet would threaten the hotel industry directly, which is now beginning thanks to Airbnb.
Similarly with banking and financial services. Some trends are obvious. Some less so.
The first is mobile payments. Mobile payments haven't taken off in the western world like we expected it to: Wave your phone at the counter or tap a few buttons, and boom, you've paid for your frappuccino.
The reason is pretty obvious: The current way of paying for things at the counter (plastic, basically) works pretty well, at least as well as using a phone, and it has tremendous barriers to change -- network effects, switching costs, regulation, entrenched interests, and more. Paying with your phone instead of cash is a long-standing nerd fantasy, but for regular people it doesn't solve a problem.
Mobile payments, however, have seen a tremendous uptake in the developing world, where they do solve problems: The problems of the unbanked. When you are unbanked, mobile payments are a godsend. They allow you to keep your money safe and make transactions much more cheaply and easily.
Online banking was the start, but mobile banking makes branches even more obsolete. First, because it's on the go -- I check my accounts a lot more often now that I have my bank's app on my phone -- and second, because now most banks let you cash checks by snapping a picture with your phone, which was the last main reason to go to a branch. Add Microsoft Skype for talking to your banking counselor, and there soon won't be a reason to visit. It sounds like a detail, but this represents a significant shift for what has been a retail business since the beginning. We are talking about many thousands of jobs and billions of dollars of real estate, and significant reorganizations of vital companies of our economy.
Because of a phone.
But besides mobile payments and mobile banking, there is a third way in which mobile might change financial services. We don't speak about it as much. This one is more speculative, more interesting and, perhaps, scarier.
With our phones and our wearables, we are now feeding countless data about us to the cloud. This data is immensely valuable to financial companies. Several start-ups, like Cignifi and Brazilian company Crivo, are built around using algorithms to tie your browsing habits to suggest things about your creditworthiness. With mobile, this rises to a new level.
This has a bunch of scary implications. But it could also provide new opportunities for start-ups to undercut banks, if they have better algorithms that can better assess people's credit risks and tailor their financial offers better. Since the Internet has begun, we have been dying for it to disrupt and replace banking, and this could be one way.
But banking isn't the only form of financial service. There is also insurance. Max Levchin, the mathematical and computer science genius who was CTO of PayPal, has basically based the current stage of his entrepreneurial career on this idea. And in insurance, data is king. With better data about us, all sorts of new insurance products become possible.
This has far-reaching -- and, again, potentially scary -- implications. Think of how your health insurance company might dynamically change your premiums based on how much you exercise, based on data fed from your phone and health tracker. On one hand, exercise is good for you, and you get a good deal, and overall people get incentives to get healthier, so everybody wins. On the other hand, this is very creepy. Plus isn't this discrimination?
This isn't idle speculation. These are problems we're going to have to talk about, as a society, and that you will hear about. And these are opportunities that suggest that maybe, just maybe, some Silicon Valley start-up will utterly disrupt the world's major companies -- companies that have literally hundreds of billions of dollars in assets.
The phone in our pocket is changing a lot of things.
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