1. SLIDE 1 OF 70
WILL WEB THINKING BRING
TRUE INNOVATION TO BANKING?
HOW THE CONSUMERISATION OF THE WEB COULD
REVOLUTIONISE BANKING AS WE KNOW IT
ADEN DAVIES
HSBC INNOVATION
@ADEN_76
Hello.

2. SLIDE 2 OF 70
WE WANT TO BE MORE
INNOVATIVE!
Every large company in the world is probably shouting out something similar. They say it but what do they mean?

3. SLIDE 3 OF 70
WE WANT TO BE MORE
INNOVATIVE*
*as long as it does not disrupt any of our current
business models, it can be done using our existing
processes, the business case stacks up and
security, fraud, risk and legal are happy with it.
Do they actually mean they want to be innovative but staying inside the existing parameters?

4. SLIDE 4 OF 70
INCREMENTAL
Photo: http://commons.wikimedia.org/wiki/File:Vatican_Museums_Spiral_Staircase_2012.jpg
This kind of thinking usually leads to one type of innovation. Incremental innovation. Making things more efficient, cheaper, and
generally better. There is nothing wrong at all with this kind of innovation and it is of course needed. But when most people think
about innovation they usually mean…

5. SLIDE 5 OF 70
REVOLUTIONARY
Photo: http://upload.wikimedia.org/wikipedia/commons/8/80/Jacques_Bertaux_-_Prise_du_palais_des_Tuileries_-_1793_.jpg
The problem for most organisations is that they are just not setup to create revolutionary innovations. For the most part they have to
operate within the parameters that have built up over time including government regulations, social norms, customer
expectations, system constraints etc.

6. SLIDE 6 OF 70
THE SOCIAL WEB
REVOLUTION
Photo: http://upload.wikimedia.org/wikipedia/commons/8/80/Jacques_Bertaux_-_Prise_du_palais_des_Tuileries_-_1793_.jpg
The social web, and companies that were born and raised on it are more likely to challenge the existing parameters. The web is evolving and it is
changing much of the industrial landscape we know. So far the heavily regulated areas for example pharmaceuticals and finance have not been
massively affected by this evolution but that is beginning to change as customers want the same ease of use of say Amazon to apply to all
internet interfaces.

7. TIM O’REILLY
FOUNDER AND CEO, O'REILLY MEDIA
SLIDE 7 OF 70
THE WEB […] TOOK THE
IDEA OF PARTICIPATION
TO
A
NEW
LEVEL, BECAUSE IT
OPENED
THAT
PARTICIPATION NOT JUST
TO SOFTWARE DEVELOPERS
BUT TO ALL USERS
OF THE SYSTEM
Quote: http://oreilly.com/pub/a/oreilly/tim/articles/architecture_of_participation.html
Photo: http://www.wired.co.uk/magazine/archive/2013/02/start/the-man-who-sees-tomorrow
Before the terms Social Media and Web 2.0, coined by Tim, the discussions about what this web revolution would be were focused
on the participation of people in the web. This quote sums it up perfectly for me. The techies built a world for others to play
in, contribute to and build upon. These qualities of inclusion have given rise to some of the most disruptive networks the world has
seen. From the power of YouTube in changing media consumption, to Twitter changing the speed of news, to Amazon being the
commerce platform for the world.

8. SLIDE 8 OF 70
ARCHITECTURE OF
PARTICIPATION
Photo: http://dev.legoimages.com/images/pieces/lego-field.jpg
Tim talked about an Architecture of participation which is much better phrase than social media or web 2.0 from an explanatory point
of view but just not as snappy as a brand and brand can be very powerful. This web that allows everyone and anyone with access to
build and add to it, create blog, build new code, connect with the world etc etc. it has lead to some great innovations and has also
lead to the downfall of many traditional businesses who ignored this revolution and thought participation was voluntary…and it could
be ignored.

9. SLIDE 9 OF 70
Photo:http://blogs.ubc.ca/literaturecircle/files/2012/07/DAVID_AND_GOLIATH_by_themico.jpg
The shift in customer expectation and experience driven by web thinking companies has caught many great companies napping.
HMV and Blockbuster being obvious names that have been swept aside by the so called little guy. Blockbuster could have bought
Netflix in 2000 for 50 million dollars. They did not and the rest along with their business is history.

10. SLIDE 10 OF 70
ARE BANK
NETWORKS AN
ARCHITECTURE OF
PARTICIPATION?
What I would like to talk about today is this. People in this room will say it is. You are the system & pipe builders of today, you are the
banking and payments license holders, you are the gatekeepers. You are on the inside. But what about everyone else? Are we truly
building systems that all can contribute to and to most importantly build upon? Should we? Photo: http://dev.legoimages.com/images/pieces/lego-field.jpg

11. SEAN PARK
SLIDE 11 OF 70
Founder of Anthemis Group SA
WE ARE STARTING TO SEE
A CAMBRIAN EXPLOSION
OF NEW VENTURES, NEW
COMPANIES, ENTREPRENEURS
FOCUSING ON THIS SPACE.
THE FRUIT MAYBE HIGH
ON THE TREE BUT IT IS
ENORMOUS & JUICY
Quote: http://videos.liftconference.com/video/4604460/reinventing-finance-one-startup-at-the
Sean Park of Anthemis group, a metastartup which funds companies who are looking to change the way finance works today and
tomorrow, is looking at this space day in day out and he sees that it is changing. Anthemis and more like them are looking to
challenge from the outside in, building innovative experiences with products such as currency cloud, simple and moven.

12. SLIDE 12 OF 70
WEB THINKING
Web thinking is what this talk is about. How the social web has given rise to people thinking in new ways about industries and how this can
impact banking and its business models. The standard view is that the banking industry is a bit staid, it is a late adoptor of digital and mobile and
is still rooted in branches and records. I want to look at some opportunities that the web offers to the banking industry.

13. BEN MILNE
FOUNDER OF DWOLLA
SLIDE 13 OF 70
PAYMENT
NETWORKS
SHOULD HAVE A MEMORY.
YOU ABSOLUTELY SHOULD
BE ABLE TO LOGIN TO
VISA.COM AND SEE EVERY
TRANSACTION YOU HAVE
EVER ENGAGED IN WITH A
VISA CARD.
THE FACT THAT YOU CAN’T
DO THIS IS RIDICULOUS.
http://blip.tv/oreilly-where-20-conference/dwolla-ubiquity-by-design-6072779
I love this quote. It contains so much new thinking that a lot of people in this room might scoff at. ‘Well of course you can’t do that as many people
can issue cards, we don’t tie back identities etc.’ Not many banks provide customers with basic transaction search capabilities let alone for the
entire customer history. Things that people take for granted today in the age of Google , persistent history, search everywhere and everything just
don’t apply to the world of finance…yet. That curiosity that why not, that what if they could.

14. SLIDE 14 OF 70
WEB THINKING
• WEB THINKING
• 1. SIMPLIFICATION
1. SIMPLIFICATION
I want to look at 3 areas of what I am classing as web thinking, there are many more but I only have 20 minutes or so. The first is simplification –
of the user interface. The web has allowed for some excellent examples of simplified user experiences hiding massively complex processes
behind it. Not simple because they do less, simple because it enables people to do more than they ever have been able to.

15. SLIDE 15 OF 70
• Square
Square is a name I suspect most people in this room are familiar with. A US startup that wondered why it was so difficult for everyday
folk to accept credit and debit cards wherever they were. Be they builders, taxi drivers or mobile hairdressers. They put in the hard
work to make registration for an account and day to day use of this so simple that any of the above trades could easily do so. They
have well over a million merchants now including ….. https://squareup.com/

16. SLIDE 16 OF 70
http://www.bbc.co.uk/news/technology-19178169
People really started to take notice was when this happened. Simple scales up it seems. Learn how to make it simple for the
masses, then move up to the bigger and more complex and apply the same methods.

17. SLIDE 17 OF 70
http://transferwise.com/
Transferwise are a really smart company founded by two chaps from Skype and PayPal, two companies that simplified traditional
industries and made a massive dent. Transferwise are extra smart in that they use the power of social networks to move
money, touching the banking network only when they absolutely have to. Imagine you are a Polish builder in Warsaw and you need
to send money back to your impoverished family in London. International remittances are expensive. There are hundreds, if not
thousands of people sending money between those two countries so why move the money at all? Find someone in Poland who
needs to do the opposite transaction with the UK so you only need to move the money inside the country only remove the actual
international remittance. Yes there is still a need to touch the banking network to credit accounts, and do some exchange where
necessary but it is a much lighter touch than a full remittance.

18. SLIDE 18 OF 70
https://www.dwolla.com/about
My third example of simple is Dwolla, the company of Ben Milne who we heard from earlier. They are a P2P payments company who
want to route money around using the networks of today i.e. social networks, and to again limit the touches of the network. They are
partnered with a small bank in Des Moines, Iowa, Veridian and this gives them direct access to the bank network on terms beneficial
to both organisations. Transfers under $10 are free and over that it is 25c irrespective of the amount. The thing that really interests
me about Dwolla is what else they have done. They rebuilt a component of ACH to make clearing faster, They want to make the
pipes better than they are today.

19. BEN MILNE
FOUNDER OF DWOLLA
SLIDE 19 OF 70
THE INTERNET GIVES US
THIS AMAZING CAPABILITY
TO ACCESS ALL THE
WORLD’S KNOWLEDGE
AT THE PUSH OF A BUTTON
BUT WE CAN’T EXCHANGE
MONEY WITHOUT MAKING
IT LESS VALUABLE?
THAT MAKES ABSOLUTELY
NO SENSE
http://blip.tv/oreilly-where-20-conference/dwolla-ubiquity-by-design-6072779

20. GORDON GEKKO
SLIDE 20 OF 70
CORPORATE RAIDER - JACKSON STEINEM
I DON’T CARE ABOUT THESE
HIPPY UPSTARTS,
NO ONE TRUSTS
THESE COMPANIES.
THEY ARE JUST SMALL
FRY AND WE STILL GET
A PIECE OF
THE ACTION*
*maybe a made up quote
Gordon is right they do. But for how long? And those pipes that people plug into today…who has the best ones? The most simple yet
powerful pipes? The pipes built for participation? The pipes built for the web and all that connects to it. Because they very well might
end up with the best cut

21. SLIDE 21 OF 70
WEB THINKING
• WEB THINKING
• 1. SIMPLIFICATION
2. PLATFORMS & PIPES
People in this room know a lot about the pipes and platforms of banking and payments today. Base 24 is the origin of this conference
and was and is the backbone of money flow in the UK and much further afield.

22. SLIDE 22 OF 70
• Better pipes
Those pipes though are seen by some as legacy, old, creaking and rusting at the seams. My colleague Anton is speaking tomorrow
and will be talking about our switch which he told me was implemented in 1988. I had just started secondary school. Old it maybe but
its still fit for purpose and billions of pounds pass through it every year.

23. SLIDE 23 OF 70
MAKE OLD
LOOK NEW
They might need a bit of an update to help them plug into today a little better but they are cool. They are useful and they should not be consigned
to the scrap heap without thought. There is also the issue that these pipes may not need that much of an update. The ATM switches represent a
great example of the value of standards and interconnectivity. The very same tenets that much of the successful web properties are built on
today.
Photo: http://alioutfit.tumblr.com

24. SLIDE 24 OF 70
http://pandodaily.com/2012/06/28/the-key-to-montises-virtual-wallet-workaround-real-world-atms/
These pipes have proved themselves ready for today, so much so that when the first mobile banking applications went live in the
UK, November 2009 with Natwest if memory serves me well, they did not plug these new services into the Internet Banking platforms
they plugged them into the ATM network. Infrastructure is a key asset and always will be, if we can add tomorrow’s interface on to it
then it will be able to survive much longer.

25. SLIDE 25 OF 70
What we need are…..APIs (see what I did there…sorry) automated ways to share data between services.

26. SLIDE 26 OF 70
APPLICATION PROGRAMMING INTERFACES
Application Programming Interfaces. Automated ways to share data between services, as well as programmable and accessible
services. These are the fabric of the social web and we are seeing them built by many industries to allow their business models to
interact not just with the web but with other business models. Currently no UK retail bank has an automated way of feeding data out
of banking systems for their customers to use elsewhere. APIs will offer a solution.

27. SLIDE 27 OF 70
https://gocardless.com/
We are starting to see the rise of business that effectively are one simple business model sitting on a smart pipe i.e. an API. This is
Go Cardless which some of you may know (actually are they here?). It allows people to simply add Direct Debit setup capability to
their sites and services. Making things simple, removing complexity, and focusing on getting things built.

28. SLIDE 28 OF 70
Payments capability used to be a pain, set up a merchant account, integrate said merchants wretched software built in late 90s at
best technology. We are starting to see companies change this. Braintree are one such company, they make it simple for you to add
payments to your site, they deal with PCI DSS, regulation, the hidden complexities of plugging into the bank network. Tech built and
problems solved by developers for developers. They process 12 billion dollars a year, a quarter of that on mobile, they have around
4,000 merchants.
Braintree have recently been acquired by PayPal for 800 million dollars. There is money in these pipes it seems

29. SLIDE 29 OF 70
https://stripe.com/gb
This is another big player in this market, Stripe. It will be interesting to see if anyone buys these guys off the back of the braintree
sale. The rising star in this world, in my opinion, is Stripe. They are building beautiful APIs that developers love.

30. SLIDE 30 OF 70
“TO DATE, ONLINE PAYMENTS INFRASTRUCTURE
IN MOST OF THESE COUNTRIES, INCLUDING
IRELAND, HAS BEEN DOMINATED BY
LUMBERING INCUMBENT BANKS. ACCEPTING
INTERNET PAYMENTS INVOLVED WEEKS OF
SETUP, REAMS OF PAPERWORK, AND
BUREAUCRATIC APPROVAL PROCESSES.”
http://thenextweb.com/eu/2013/09/03/stripe-launches-its-online-payment-processing-platform-in-ireland-its-first-in-the-eurozone/
They are rolling out rapidly now. They have launched in the US, UK and Ireland and are currently in beta in Spain, The
Netherlands, Belgium and Germany. I love this quote form their recent launch in Ireland. Simplicity is key.

31. SLIDE 31 OF 70
https://developer.paypal.com/
These so called smaller players are putting pressure on the big boys. PayPal were pioneers in the API space but the functionality that
Stripe have been building has forced hem to adapt…and buy a competitor i.e. Braintree

32. SLIDE 32 OF 70
https://developer.visa.com/
And the traditional players now know that developers are a key market for them. Can the big players capture the developer cool?
Can the incumbent throw money at it? An interesting battle. Conventional wisdom say they win. We shall see. Will Visa buy Stripe?
Can they?

33. SLIDE 33 OF 70
• Add in hackday screenshot. Battle hack?
http://battlehack.org/
What do these APIs enable? As well as being simple to use what they offer is flexibility and speed. The hackday is a crucial element
of raising developer awareness but also of building things quickly. Using APIs to build live services in a matter of hours not months
and years.

34. SLIDE 34 OF 70
http://www.flickr.com/photos/daloot/4989576404/
What can banks do? Banks exist to facilitate growth and commerce and they are the reason they built these platforms. How should
they react to these new players? Defend the network and the business model at all costs or let the new players build and expand
them?

35. SLIDE 35 OF 70
http://www.davidmelling.co.uk/shop.html
I may be naïve but I believe that the Banks with the best pipes could well win. Those that embrace the web and its brave new
entrepreneurs will reap the benefits. Those that embrace the new builders, the new routes of trade built upon age old business
models of saving, investing, and paying.

36. SLIDE 36 OF 70
WEB THINKING
• WEB THINKING
• 1. SIMPLIFICATION
3. BUILD IT BETTER
I also think if we do not embrace the new players then the pain points in the network will become too great and the incentive will exist
to build new, better pipes that ignore the old world entirely.

37. SLIDE 37 OF 70
An example of new pipe. Bitcoin - a maths based currency. A pseudo maths/physics PHD thesis set loose to wreak havoc on the
world. ..or to see if money can be made for the digital world.

38. SLIDE 38 OF 70
https://www.secondmarket.com/education/landing/bitcoin-ecosystem
The Bitcoin ecosystem is small compared the banking network we know and love. But it is growing steadily and today is worth about
a billion dollars per year. Chicken feed to some….but lets us not forget this currency was set free on January 9 th 2009. It is 4.5 years
old. Only just going to school….

39. SLIDE 39 OF 70
http://www.wired.com/images_blogs/threatlevel/2012/05/Bitcoin-FBI.pdf
In its short yet exciting life it has been the subject of an FBI report entitled - Bitcoin Virtual Currency: Unique features present distinct challenges
for deterring illicit activity. Which is a tough report to receive while you are still at nursery but illustrates the parameters within which the financial
services sector operates. The report looks at the risk from illegal use of the currency, the risk of attacks upon users of the currency i.e. theft and
the types of crime it could permit.

40. SLIDE 40 OF 70
http://www.zdnet.com/regulation-forces-tradehill-bitcoin-exchange-to-suspend-all-trading-7000020102/
The regulators have been tough on the exchange points of Bitcoin i.e. where the new meets the old. With exchanges, frozen or
closed or just quitting in the face of regulatory nightmares.

41. SLIDE 41 OF 70
http://www.telegraph.co.uk/finance/currency/10210022/Bitcoins-banned-in-Thailand.html
It has been banned in Thailand….kind of. An exchange tried to get certified there and the central bank of Thailand declared that they
had no means of deciding if it was legal, so it is therefore illegal.

42. SLIDE 42 OF 70
http://www.cnbc.com/id/100971898
Meanwhile in Germany they have declared it legal and classed it as a unit of account, private money or (if you will excuse my
German accent and pronunciation) Runginsteinin’ (Spelling?) What impact will that have on the rest of the EU? Will we now see a
flood of Bitcoin businesses in Berlin?

43. SLIDE 43 OF 70
MARKET PRICE (USD)
Graph http://blockchain.info/charts/market-price
This is the exchange rate for Bitcoins. It has suffered many mini crashes but in April this year prices rocketed to around 240 dollars
and all of a sudden the world took notice. The inevitable crash happened…sending the currency back down to around 80 dollars. It
has since recovered and seem to be hovering around 140 dollars at the moment.

44. SLIDE 44 OF 70
http://www.washingtonpost.com/blogs/the-switch/wp/2013/08/27/inside-the-bitcoin-advocates-closed-door-meeting-with-federal-regulators/
It has been invited to some interesting meetings in the last few months. To Washington to met with ‘nearly a dozen high level
agencies’ as the governments and regulators try to get their head around what this decentralised thing is? The biggest concern is the
supposed anonymity it offers and how this subverts govt regulations aimed at money laundering, capital controls, financial sanctions
etc. And there have been recent meetings at Number 10 as more understanding is need from both a regulatory point of view but also
from potential bitcoin businesses.

45. SLIDE 45 OF 70
WHY IT MATTERS
1. NETWORK
They are creating their own money moving network as if the internet had existed when banking began. It is open source, it is
transparent (to those with good enough eyes), an exchange can be opened by anyone brave enough to try and link it to the old world.
It can be added to and updated by anyone with the coding chops. Someone has just built a micropayments channel into the next
release. A problem traditional payment networks have struggled with for years. It does not see countries it sees endpoints…people
moving money form one place/address to another.
The actual mining network is also a force to be reckoned with. The computing power used in mining currency, and at the same time
ensuring the security of transactions in the network reached one petahash, this means it is doing around a 1000, trillion calculations a
second.
Photo: Mick Wright: https://bitcointalk.org/index.php?topic=23256.0

46. SLIDE 46 OF 70
WHY IT MATTERS
1. NETWORK
2. REGULATION
They are facing regulation head on. The list of incidents above has impacted on Bitcoins progress but if it can negotiate the
complexity of the regulation and pass through relatively unscathed then what can it become? This network is now also very well
funded because of ……
Photo: Mick Wright: https://bitcointalk.org/index.php?topic=23256.0

47. SLIDE 47 OF 70
WHY IT MATTERS
1. NETWORK
2. REGULATION FIGHT
3. BRAND
This should not be downplayed either. In this room the brand will be very different to the brand in say some swanky silicon valley VC
fund office. But Sean’s Cambrian explosion insight is right and Bitcoin has the focus of some very rich people around the world. The
legions of developers these VCs have sway over could build out systems we could not dream of, using libertarian ideals in the hope
of delivering old fashioned capitalist gains. The brand can become a byword for new banks/new pipes. Like Big Data, Social
Media, Mobile, Geolocation etc. etc. a brand to let million ideas blossom under? Or just another fad for a million conferences?
Photo: Mick Wright: https://bitcointalk.org/index.php?topic=23256.0

48. FRED WILSON
COFOUNDER UNION SQUARE VENTURES
SLIDE 48 OF 70
IT
REMINDS
US
OF
SMTP,
HTTP,
RSS,
AND
BITTORRENT
IN
ITS
ARCHITECTURE AND OPENNESS.
LIKE WHAT HAPPENED WITH
THOSE OTHER LOW LEVEL
PROTOCOLS,
ENTREPRENEURS
AND DEVELOPERS ARE NOW
BUILDING TECHNOLOGY ON TOP
OF BITCOIN TO MAKE IT MORE
USEFUL, MORE ACCESSIBLE, AND
MORE SECURE.
I will end on Bitcoin with a quote from a very well known Valley VC, Fred Wilson early stage funder of some key networks such as
Twitter and Tumblr. This is what they see, new foundations, payments as fabric of the web. Something to build upon, that a legion of
new makers and doers can play with, contribute to and buildQuote: http://www.businessinsider.com/fred-wilson-heres-why-im-investing-in-bitcoin-2013-5#ixzz2dvqeUBXi
upon. Is it a real architecture of participation?

49. SLIDE 49 OF 70
WEB THINKING
• WEB THINKING
• 1. SIMPLIFICATION
1. SIMPLIFICATION
2. PLATFORMS & PIPES
3. BUILD IT BETTER
So in summary, I think we need to see more web thinking in banking. Look to the startups and the angles they are attacking, the
changes they want to see and the questions they are asking.

50. SLIDE 50 OF 70
REVOLUTION
IS COMING
Revolution is coming….those that are most prepared will feel less pain.
Photo: http://upload.wikimedia.org/wikipedia/commons/8/80/Jacques_Bertaux_-_Prise_du_palais_des_Tuileries_-_1793_.jpg

51. SLIDE 51 OF 70
SMART
INCREMENTS
increments are imperative, cheaper smarter and faster is always better but do not forget about building for other builders and
understanding the power of networks.

52. SLIDE 52 OF 70
MAKE THE BANK
NETWORKS AN
ARCHITECTURE OF
PARTICIPATION
Can we make the banking network we know and love today more participative by all, not just those that hold all the keys but by each
and everyone of us.
Photo: http://dev.legoimages.com/images/pieces/lego-field.jpg

53. SLIDE 53 OF 70
THANKS
NAME: ADEN DAVIES
WEB: WWW.ADENDAVIES.COM
TWITTER: @ADEN_76 @FINTECHBOT