I was talking at a conference and a regulator was on the panel.
The panel chair asked him: “should we think about innovation first or regulation?” and he responded by saying: “It is not a question of regulation or innovation. I would rather ask the question: why do we need innovation at all? Who is it for? Who does it benefit?”
I was a little bit surprised at this response, but then the regulators don’t really get what’s happening, do they? Not only are regulators trying to sweep up issues in the market as they see them occurring, but they are always following behind the markets that are following the customers.
The customer is in the lead.
In this case, it is the consumer who is leading the corporations, who are requesting the banks for innovations that the regulators are then trying to regulate.
No wonder the regulator was dismissive of innovation.
I’ve been in the tech industry for over three decades, and when I started we were using punched card machines.
Magnetic disc storage was just appearing and soon became mainstream.
Picture from the archive: an ICL Disc Station, the predecessor to the hard disc
I remember selling my first major system to an insurance company.
The system comprised a 16MB processor with 250MB disk storage, and cost around $300,000.
Times have changed.
Today, these storage and processing capacities are laughable.
For example, by way of comparison, I’m about to buy a new laptop with an 8GB processor and 1TB storage for under $700.
That’s what a difference twenty years has made, with processing and storage capabilities becoming unlimited whilst price has become meaningless.
Think of it another way.
The most powerful computer in the world by the end of the 1980s was the Cray computer.
Picture from the Archive: 1997 CRAY T3E Supercomputer
The Cray supercomputer was the most expensive in the world, costing millions of dollars, but that’s because they were the most impressive in the world, they could even play chess and they could win, beating chessmasters, until other computers played against them and won.
Today, that Cray supercomputer is less powerful than the mobile phone you use.
Put it another way.
In 1997, I worked with a firm called Teradata (still going today) who provided the most powerful analytic machines in the world.
The machines cost millions and could trawl through masses of information to find the relationships between different fragments of data and make sense of them.
The machines were known to be expensive, and people bought them to be better at proactive marketing to their customers. The kind of Big Data engines of their day.
The biggest customer in the world for mining data at that time was Wal*Mart.
Wal*Mart had a 27 terabyte database, and that was considered MASSIVE.
Wal*Mart had invested $20 million in the system and it worked.
Today, I can buy a terabyte of storage for under $100 almost anywhere.
Processing power is cheap, storage is cheap and computing technology capabilities are disposable and simple for everyone to access and use.
What was once a price barrier is now a usage encourager, and encouraging usage has certainly happened?
We now generate exabytes of data daily and think nothing of it.
And the social mobile is our point of access to do all of this.
So here’s the point, returning to my regulator-innovator dialogue.
The consumer is now the innovator.
The consumer now has the power in their pocket or purse that used to reside in the largest corporations to process data.
The consumer is now socialising and communicating with the tools that used to enable businesses to communicate and transact.
As a result, the consumer is creating their own way of trading, interacting and organising their finances, using cheap and powerful tools at their disposal from many providers, including financial and non-financial firms for their financial needs.
Almost four years ago, I called this Banking-as-a-Service.
On-demand banking that the user defines their way.
Four years later, some banks are catching up with this message because it often takes years for the banking industry to move.
But the industry cannot move in years.
It should be moving in months or weeks or even days.
I will write more about this tomorrow, with some specific examples of where the industry has moved too slow and, on occasion, too fast.
In the meantime, the regulator will always lose as they follow the industry that follows their corporate clients who follow their consumers who innovate … and the consumers will always win as they lead businesses and governments, who lead banks who lead regulators to regulate.
Archive photographs from the Muzeum Techiki, Warzaw, Poland