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Web Payments and the World Banking Conference (SIBOS)

From: Manu Sporny <msporny@digitalbazaar.com>
Date: Thu, 26 Sep 2013 13:49:49 -0400
Message-ID: <524473BD.3030703@digitalbazaar.com>
To: Web Payments CG <public-webpayments@w3.org>
The standardization group for all of the banks in the world (SWIFT) was
kind enough to invite me to speak at the worlds premier banking
conference about the Web Payments work at the W3C. The conference,
called SIBOS, happened last week and brings together 7,000+ people from
banks and financial institutions around the world. They wanted me to
present on the new Web Payments work being done at the World Wide Web
Consortium (W3C) including the work we’re doing with PaySwarm, Mozilla,
the Bitcoin community, and Ripple Labs.

The following blog post outlines all of the lessons learned from the
past week spent networking with the big banks and financial institutions
around the world:


Full text included below for W3C archival purposes.

Web Payments and the World Banking Conference

   The standardization group for all of the banks in the world
   ([1]SWIFT) was kind enough to invite me to speak at the worlds
   premier banking conference about the [2]Web Payments work at the
   W3C. The conference, called [3]SIBOS, happened last week and
   brings together 7,000+ people from banks and financial
   institutions around the world. The event was being held in Dubai
   this year. They wanted me to present on the new Web Payments work
   being done at the World Wide Web Consortium (W3C) including the
   work we’re doing with PaySwarm, Mozilla, the Bitcoin community,
   and Ripple Labs.

   If you’ve never been to Dubai, I highly recommend visiting. It is
   a city of extremes. It contains the highest density of stunningly
   award-winning sky scrapers while the largest expanses of desert
   loom just outside of the city. Man-made islands dot the coastline,
   willed into shapes like that of a multi-mile wide palm tree or
   massive lumps of stone, sand, steel and glass resembling all of
   the countries of the world. I saw the largest in-mall aquarium in
   the world and ice skated in 105 degree weather. Poverty lines the
   outskirts of Dubai while ATMs that vend gold can be found
   throughout the city. Lamborghinis, Ferraris, Maybachs, and Porches
   roared down the densely packed highways while plants struggled to
   survive in the oppressive heat and humidity.

   The extravagances nestle closely to the other extremes of Dubai:
   [4]a history of indentured servitude, women’s rights issues,
   zero-tolerance drug possession laws, and political self-censorship
   of the media. In a way, it was the perfect location for the worlds
   premier banking conference. The capital it took to achieve
   everything that Dubai had to offer flowed through the banks
   represented at the conference at some point in time.

The Structure of the Conference

   The conference was broken into two distinct areas. The more
   traditional banking side was on the conference floor and resembled
   what you’d expect of a well-established trade show. It was large,
   roughly the size of four football fields. Innotribe, the
   less-traditional and much hipper innovation track, was outside of
   the conference hall and focused on cutting edge thinking, design,
   new technologies. The banks are late to the technology game, but
   that’s to be expected in any industry that has a history that can
   be measured in centuries. Innotribe is trying to fix the problem
   of innovation in banking.


   One of the most surprising things that I learned during the
   conference was the different classes of customers a bank has and
   which class of customers are most profitable to the banks. Many
   people are under the false impression that the most valuable
   customer a bank can have is the one that walks into one of their
   branches and opens an account. In general, the technology industry
   tends to value the individual customer as the primary motivator
   for everything that it does. This impression, with respect to the
   banking industry, was shattered when I heard the head of an
   international bank utter the following with respect to banking
   branches: “80% of our customers add nothing but sand to our bottom
   line.” The banker was alluding to the fact that all most customers
   bring into the banking branch is the sand on the bottom of their
   shoes. The implication is that most customers are not very
   profitable to banks and are thus not a top priority for the banks.
   This summarizes the general tone of the conference with respect to
   customers when it came to the managers of these financial

   Fundamentally, a banks motives are not aligned with most of their
   customer’s needs because that’s not where they make the majority
   of their money. Most of a banks revenue comes from activities like
   short-term lending, utilizing leverage against deposits, float,
   high-frequency trading, derivatives, and other financial products
   that are far removed with what most people in the world think of
   when they think of their bank.

   For example, it has been possible to do realtime payments over the
   current banking network for a while now. The standards and
   technology exists to do so within the vast majority of the bank
   systems in use today. In fact, enabling this has been put to a
   vote for the last five years in a row. Every time it has been up
   for a vote, the banks have voted against it. The banks make money
   on the day-to-day float against the transfers, so the longer it
   takes to complete a transfer, the more money the banks make.

   I did hear a number of bankers state publicly that they cared
   about the customer experience and wanted to improve upon it.
   However, those statements rang pretty hollow when it came to the
   product focus on the show floor, which revolved around B2B
   software, high-frequency trading protocols, high net-value
   transactions, etc. There were a few customer-focused companies,
   but they were dwarfed by the size of the major banks and financial
   institutions in attendance at the conference.

The Standards Team

   I was invited to the conference by two business units within
   SWIFT. The first was the innovation group inside of SWIFT, called
   Innotribe. The second was the core standards group at SWIFT. There
   are over 6,900 banks that participate in the SWIFT network. Their
   standards team is very big, many times larger than the W3C, and
   extremely well funded. The primary job of the standards team at
   SWIFT is to create standards that help their member companies
   exchange financial information with the minimum amount of
   friction. Their flagship product is a standard called [5]ISO
   20022, which is a 3,463 page document that outlines every sort of
   financial message that the SWIFT network supports today.

   The SWIFT standards team are a very helpful group of people that
   are trying their hardest to pull their membership into the future.
   They fundamentally understand the work that we’re doing in the Web
   Payments group and are interested in participating more deeply.
   They know that technology is going to eventually disrupt their
   membership and they want to make sure that there is a transition
   path for their membership, even if their membership would like to
   view these new technologies, like Bitcoin, PaySwarm, and Ripple as
   interesting corner cases.

   In general, the banks don’t view technical excellence as a
   fundamental part of their success. Most view personal
   relationships as the fundamental thing that keeps their industry
   ticking. Most bankers come from an accounting background of some
   kind and don’t think of technology as something that can replace
   the sort of work that they do. This means that standards and new
   technologies almost always take a back seat to other more
   profitable endeavors such as implementing proprietary high
   frequency trading and derivatives trading platforms (as opposed to
   customer-facing systems like PaySwarm).

   SWIFT’s primary customers are the banks, not the bank’s customers.
   Compare this with the primary customer of most Web-based
   organizations and the W3C, which is the individual. Since SWIFT is
   primarily designed to serve the banks, and banks make most of
   their money doing things like derivatives and high-frequency
   trading, there really is no champion for the customer in the
   banking organizations. This is why using your bank is a fairly
   awful experience. Speaking from a purely capitalistic standpoint,
   individuals that have less than a million dollars in deposits are
   not a priority.

Hobbled by Complexity

   I met with over 30 large banks while I was at SIBOS and had a
   number of low-level discussions with their technology teams. The
   banking industry seems to be crippled by the complexity of their
   current systems. Minor upgrades cost millions of dollars due to
   the requirement to keep backwards compatibility. For example, at
   one point during the conference, it was explained that there was a
   proposal to make the last digit in an [6]IBAN number a particular
   value if the organization was not a bank. The amount of push-back
   on the proposal was so great that it was never implemented since
   it would cost thousands of banks several million dollars each to
   implement the feature. Many of the banks are still running systems
   as part of their core infrastructure that were created in the
   1980s, written in COBOL or Fortran, and well past their initial
   intended lifecycles.

   A bank’s legacy systems mean that they have a very hard time
   innovating on top of their current architecture, and it could be
   that launching a parallel financial systems architecture would be
   preferable to broadly interfacing with the banking systems in use
   today. Startups launching new core financial services are at a
   great advantage as long as they limit the number of places that
   they interface with these old technology infrastructures.

Commitment to Research and Development

   The technology utilized in the banking industry is, from a
   technology industry point of view, archaic. For example, many of
   the high-frequency trading messages are short ASCII text strings
   that look like this:


   Imagine anything like that being accepted as a core part of the
   Web. Messages are kept to very short sequences because they must
   be processed in less than 5 microseconds. There is no standard
   binary protocol, even for high-frequency trading. Many of the
   systems that are core to a bank’s infrastructure pre-date the Web,
   sometimes by more than a decade or two. At most major banking
   institutions, there is very little R&D investment into new models
   of value transfer like PaySwarm, Bitcoin, or Ripple. In a room of
   roughly 100 bank technology executives, when asked how many of
   them had an R&D or innovation team, only around 5% of the people
   in the room raised their hands.

   Compare this with the technology industry, which devotes a
   significant portion of their revenue to R&D activities and tries
   to continually disrupt their industry through the creation of new

No Shared Infrastructure

   The technology utilized in the banking industry is typically
   created and managed in-house. It is also highly fractured; the
   banks share the messaging data model, but that’s about it. The
   SWIFT data model is implemented over and over again by thousands
   of banks. There is no set of popular open source software that one
   can use to do banking, which means that almost every major bank
   writes their own software. There is a high degree of waste when it
   comes to technology re-use in the banking industry.

   Compare this with how much of the technology industry shares in
   the development of core infrastructure like operating systems, Web
   servers, browsers, and open source software libraries. This sort
   of shared development model does not exist in the banking world
   and the negative effects of this lack of shared architecture are
   evident in almost every area of technology associated with the
   banking world.

Fear of Technology Companies

   The banks are terrified of the thought of Google, Apple, or Amazon
   getting into the banking business. These technology companies have
   hundreds of millions of customers, deep brand trust, and have
   shown that they can build systems to handle complexity with
   relative ease. At one point it was said that if Apple, Google, or
   Amazon wanted to buy Visa, they could. Then in one fell swoop, one
   of these technology companies could remove one of the largest
   networks that banks rely on to move money in the retail space.

   While all of the banks seemed to be terrified of being disrupted,
   there seemed to be very little interest in doing any sort of
   drastic change to their infrastructure. In many cases, the banks
   are just not equipped to deal with the Web. They tend to want to
   build everything internally and rarely acquire technology
   companies to improve their technology departments.

   There was also a relative lack of executives at banks that I spoke
   with that were able to carry on a fairly high-level conversation
   about things like Web technology. It demonstrated that it is going
   to still be some time until the financial industry can understand
   the sort of disruption that things like PaySwarm, Bitcoin, and
   Ripple could trigger. Many know that there are going to be a large
   chunk of jobs that are going to be going away, but those same
   individuals do not have the skill set to react to the change, or
   are too busy with paying customers to focus on the coming

A Passing Interest in Disruptive Technologies

   There was a tremendous amount of interest in Bitcoin, PaySwarm,
   Ripple and how it could disrupt banking. However, much like the
   music industry, all but a few of the banks seemed to want to learn
   how they could adopt or use the technology. Many of the
   conversations ended with a general malaise related to
   technological disruption with no real motivation to dig deeper
   lest they find something truly frightening. Most executives would
   express how nervous they were about competition from technology
   companies, but were not willing to make any deep technological
   changes that would undermine their current revenue streams. There
   were parallels between many bank executives I spoke with, the
   [7]innovators dilemma, and how many of the music industry
   executives I had been involved with in the early 2000s reacted to
   the rise of Napster, peer-to-peer file trading networks, and
   digital music.

   Many higher-level executives were dismissive about the sorts of
   lasting changes Web technologies could have on their core
   business, often to the point of being condescending when they
   spoke about technologies like Bitcoin, PaySwarm, and Ripple. Most
   arguments boiled down to the customer needing to trust some
   financial institution to carry out the transaction, demonstrating
   that they did not fundamentally understand the direction that
   technologies like Bitcoin and Ripple are headed.

Lessons Learned

   We were also able to get the message out about the sort of work
   that we’re doing at W3C when it comes to Web Payments and it was
   well received. I have already been asked to present at next years
   conference. There is a tremendous opportunity here for the
   technology sector to either help the banks move into the future,
   or to disrupt many of the services that have been seen as
   belonging to the more traditional financial institutions. There is
   also a big opportunity for the banks to seize the work that is
   being done in Web Payments, Bitcoin, and Ripple, and apply it to a
   number of the problems that they have today.

   The trip was a big success in that the Web Payments group now has
   very deep ties into SWIFT, major banks, and other financial
   institutions. Many of the institutions expressed a strong desire
   to collaborate with them on future Web Payments work. The
   financial institutions we spoke with thought that many of these
   technologies were 10 years away from affecting them, so there was
   no real sense of urgency to integrate the technology. I’d put the
   timeline closer to 3-4 years than 10 years. That said, there was
   general agreement that these technologies mattered. The lines of
   communication are now more open than they used to be between the
   traditional financial industry and the Web Payments group at W3C.
   That’s a big step in the right direction.


   1. http://en.wikipedia.org/wiki/SWIFT
   2. http://www.w3.org/community/webpayments/
   3. http://www.sibos.com/
   4. http://en.wikipedia.org/wiki/Human_rights_in_Dubai
   5. http://www.iso20022.org/
   6. http://en.wikipedia.org/wiki/International_Bank_Account_Number
   7. http://en.wikipedia.org/wiki/Innovator%27s_dilemma

-- manu

Manu Sporny (skype: msporny, twitter: manusporny, G+: +Manu Sporny)
Founder/CEO - Digital Bazaar, Inc.
blog: Meritora - Web payments commercial launch
Received on Thursday, 26 September 2013 17:50:15 UTC

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