Two Technologies - What To Do?
The Swiss Insider 12.01.2020 #insidersdoitbetter
Dear Insider,
Barely two weeks until the world economy turns to ice.
Not literally, of course, but you could be forgiven for making such a mistake. The after-holiday time is generally a “downer” - and on top of that the main men and women of the business world turn up in Davos for the World Economic Forum.
Many will be the debates, and few the solutions…
One thing is for sure: technology continues to influence every aspect of business.
This week’s The Point article focuses on two technologies that have put Swiss businesses (mostly Swiss banks) in a bind: the cloud and the blockchain.
Glad to have you inside!
Ian
The Numbers Game
In which we serve up some of the more interesting numbers in Swiss business…
64 524
Want a decent place to sleep in Davos during WEF? You can still find a pillow to rest your head - even an entire apartment…but only if you have 64 524 CHF. A pretty penny for personal privacy.
12/40
The venerable Swiss retailer Manor announced plans this past week to reorganize its warehouse operations. The result? A new structure with 28 large centers…and a reduced workforce. That includes 12 less directors and around 40 other workers let go. The pinch is starting…
49 billion
The Swiss National Bank may be many people’s boogeyman - mostly because of its negative interest rate policy. But - it does know how to make money, in spite of it all. 2019 saw the central bank haul in 49 billion CHF. According to analysts, it was no suprise.
The Briefing
In which we digest business news from around Switzerland - bit by bit…
Paying the Piper
The Swiss National Bank may have raked in nearly 50 billion francs in profit over the past year, but the country is not about to let them simply stockpile the cash in a vault on Boersenstrasse. Realizing that its policy on interest rates is widely unpopular, Thomas Jordan and company have indicated their willingness to pour some of the reserves back in to the economy, namely to help shore up the state pension fund. (Read more here.)
Get Out the Scissors
Iqbal Khan’s new plan to rejuvinate the wealth management arm of UBS has many hallmarks of his work at Credit Suisse - restructuring, more freedom for regional managers and so on. It will also come with a price tag: the jobs of approximately 500 bankers. Time alone will tell the tale… (Read the details here.)
May They All Be One
With the number of bank branches set to fall over the next few years, the possibility for more ATM machines and in particular more services for clients, becomes more important. Now SIX, the software provider for Swiss ATM services is considering a push to make all of the machines work for all clients of all banks. Unity at last? (Read more here.)
Bring someone inside.
Recommend The Swiss Insider to a colleague or acquaintance.
You decide who comes inside.
The Point Is…
In which we dive into the depths of a hot topic of the times…
The Switzerland of Two Technologies - Between the Cloud and the Blockchain
The tale of two technologies - and the $64 billion industry caught in between - begins with a simple observation: things in Switzerland move slowly.
Most of the time this is viewed as an advantage. In fact, the Swiss tendency for evolution rather than revolution is surely one fundamental reason that over $2 trillion worth of worldwide wealth sits with Swiss banks and financial institutions. To them, Switzerland is synonymous with a bastian of stability.
When it comes to adoption of new technology, being a slow and steady turtle may or may not be so much of an advantage.
Over the last several years, two great technologies - cloud computing and the blockchain - have arisen. By virtue of Switzerland's languid pace of digitalization, these two tech trends now find themselves at odds in the minds (if not hearts) of the decision-makers in boardrooms from Geneva to St Gallen.
On the one hand, a technology that promises greater efficiency and cost-cutting, as well as more agility - the cloud. On the other, a singular and much-hyped advancement that purports to be able to in some ways replace banks, but also help save them (depending on who you ask).
In a nutshell, it is centralization (with its advantages) versus decentralization (with its advantages, at times potentially disruptive in nature.)
The question is: can the two co-exist?
Cloud questions
The case for the cloud has been a long time coming for Swiss banks. But with gentle prodding and encouragement, adoption has finally blossomed.
The Swiss Bankers Association, the all-powerful industry lobby, has been instrumental with much hand-holding and guidance along the way. With FINMA's new and updated circulars regarding outsourcing published in late 2018, Swiss banks large and small finally received some legal footing on which to treat cloud service providers.
Of course, the choices are many and the options now without risks. A perfect excuse (or justification) for more delay.
And yet, things move forward with all the big names in cloud computing circling around with their various offerings - Oracle, IBM, Microsoft, Swisscom and Amazon Web Services. Even SIX, the Swiss stock exchange infrastructure provider, is getting in on the game.
With this step, most of the major (and even minor) Swiss banks are taking a huge step forward towards digitalization and efficient, 21st-century style online services - the sort of thing that a vast majority of customers expect.
Blowing away the blockchain?
Where does this leave blockchain?
Exactly - where does this leave the technology behind Bitcoin? If the cloud was great and finally safe enough invest in, surely a dash of blockchain thrown in can't hurt, right?
It's not quite so simple as that.
Having just managed to twist themselves up to accept a technology that they can't really tough or feel, it is understandably difficult for banking executives to immediately make another leap forward and add blockchain on top. Even more so, because the main value propositions of the two technologies lie miles apart.
Security is (and always will be) the single biggest concern of any bank or financial institution. That is precisely why it took Swiss banks so long to make a "til-death-do-us-part" commitment to cloud computing. If clouds presented a host of questions-marks about their safety, it isn't hard to imagine what kind of fear there may be over blockchain as a base-layer technology. As CEOs and CIOs understand it, data is fully transparent, immutably stored and verified and traceable by anyone with minimal technical skill.
The reality is that this oversimplification of blockchain ignores the fact that varieties and flavors of blockchains may exist. Just like cloud technologies can be public, private, hybrid or even community, so blockchains have their variations, between public (Bitcoin, Ethereum, Tezos, Cardano among the most popular) and private or semi-private (Corda, Quorum, Hyperledger and others). Banks so far have generally explored the latter, since the very term "public" seems to be too scary to consider and it would appear to solve their personal data protection problems.
But then again, with the advent of zero-knowledge proofs and other privacy-preserving technology, that fear may eventually be a moot point. EY in particular is working towards that end with its Nightfall implementation for Ethereum.
Dumb databases
Part of the conundrum for Swiss banks may stem from the fact that - stripped away from the incentive system that helps power it (i.e. the cryptocurrencies like Bitcoin and Ether which are native to their protocols) - a blockchain is (more or less) a database.
Some people like to point this out - both to show that blockchain isn't all about Silk Roads and terrorism and, on the flip side, to deride the technology as just another (slow) way of storing information.
So, naturally, when you line up a blockchain and a cloud storage solution and label them both to be apples - the cloud comes out looking much better. Of course, its centralized qualities also align much better with the business models of banks, built as they are to capture value through proprietary services - in other words, through centralization.
That means that blockchains and clouds are mutually exclusive, right? As long as they end up in the same apple basket - most probably, yes.
But as banks, both in Switzerland and beyond, have grown to understand, the cost of maintaining centralized systems - often barely digitized at all - can be enormous. With two-thirds of Swiss banks posting a cost/income ratio of over 70%, things are not looking so good.
Is there room, then, to explore new business models that actually leverage the power of decentralization? Social media companies such as Facebook, platforms such as Uber and Airbnb have already demonstrated the power of network effects without embracing decentralization. It is wholly possible that financial services will see the benefit of modelling themselves more like platforms with a broad reach and less centralized cost burden and blockchain as the a trust layer connecting all participants.
The crux of the problem will be data storage and privacy. But this is where cloud technology may be able to jump into the equation. Contrary the ill-informed oversimplifications, blockchains were never meant to be simple databases for massive dumps of personal data. Cloud technology was - at least as far as storage goes.
Combine the two and who knows what new possibilities could be born.
In the meantime, pushing blockchain by itself will be a hard sell with Swiss banks who have only just mustered up enough courage to start seriously building on the cloud.