Innotribe, the innovation arm of SWIFT, is proposing a way for banks to become the brokers for all types of exchanges of digital data. It wants to build the underlying infrastructure, called the digital asset grid (DAG), to bring bank-grade identity, privacy and security to the global exchange of any digital asset between any parties. If it works, banks will make more money, make their existing customers happier, and attract new business.
Monte dei Paschi di Siena (pictured on Informilo’s home page), the world’s oldest bank, is in trouble. In October it failed the European Banking Authority’s stress test and had its rating cut to junk. The bank, which is struggling to navigate Italy’s recession and the euro zone debt crisis, is a powerful symbol of the sector’s woes. Banking, which like Monte dei Paschi di Siena itself, dates back to the time of the Medicis, is being hit with a double whammy: a tanking global economy and disintermediation by Internet and telecom players, with dire consequences.
Erosion of market share by new entrants offering payments and financing is a serious threat to traditional players. Valuations for companies like Square ($3.7 billion) and Xoom ($1 billion) illustrate the seismic shift in capital flows away from traditional institutions like Monte dei Paschi di Siena, which has been operating without interruption for five centuries, to new players that have sprung up overnight. When you add in threats posed by telcos in payments and personal finance start-ups like Mint, banks are facing the possibility of increased marginalization, leading to a dramatic fall in profitability.
Just as telecoms companies risk becoming dumb pipes, banks could be relegated to a role as clearing houses.
The Society for Worldwide Interbank Financial Telecommunications (SWIFT), a global organization that each day handles financial transactions such as wire transfers for more than 9,000 banks, wants to help the industry forge a very different type of future, one that will place banks at the nexus of the digital economy. Such a position could bring in new revenue streams from a whole range of innovative new services.
Innotribe, the innovation arm of SWIFT, is proposing a way for banks to become the brokers for all types of exchanges of digital data. It wants to build the underlying infrastructure, called the digital asset grid (DAG), to bring bank-grade identity, privacy and security to the global exchange of any digital asset between any parties. If it works, banks will make more money, make their existing customers happier, and attract new business. The possibilities of leveraging customer data – with their permission – for e-commerce transactions and more, factoring in presence and preferences, are tantalizing. They promise, for example, to make each retail customer feel he or she has his or her own personal banker.
DAG could give banks an affordable platform from which to launch their own data-driven services and a powerful product to sell to non-banks to power existing and planned data services, placing banks at the very heart of digital commerce.
“The situation in banking globally is that interest rates are compressed, FX is compressed and fees are compressed, which means that a whole bunch of revenue sources that we used to have as an industry are now eroding – it may not erode to zero but it can erode to a level that is challenging,” says Antonio F. Benjamin, Citigroup’s global chief technology officer and managing director of global transaction services. “Banks who do not evaluate and assess both the risks and opportunity of (the DAG) do it at their own peril.”
A working DAG prototype – including sample services for both retail and corporate customers — will be revealed during Sibos, an annual conference that gathers 8,500 banks from around the world, which this year will take place in Osaka, Japan from October 29th to November 1st.
Data is becoming a new type of raw material, on a par with capital and labor, according to a 2011 World Economic Forum report, Personal Data: The Emergence of a New Asset Class? Some of the largest Internet companies, including Google and Facebook, reap most of the profits from collecting, aggregating, analyzing and monetizing personal data.
Today, from a consumer’s or corporate’s perspective, the data exists in silos. The goal is to liberate the data, and bring it together in a secure place where a person or a corporation could easily access this information and decide how best to use and share it. If not just the banks but the smartest developers could build apps on top of such permission-based data, it would open up a realm of new possibilities.
Some of these opportunities are outlined in a report entitled Privacy by Design and the Emerging Personal Data Ecosystem, prepared by Ann Cavoukian, the Information and Privacy Commissioner of Ontario, Canada, in collaboration with Innotribe and others; the report is scheduled to be released at Sibos. “Analyzing information about our own purchases, payments and habits could make us smarter financially,” says the report. “Mashing together health records with dietary and exercise tracking could make us healthier. We could use our information to signal purchase intent directly to retailers, earning us better offers and allowing our favorite stores to create more satisfying and welcoming relationships with us. From a productivity perspective, we could use the data in our vault to literally make form filling obsolete and reclaim tens of billions of wasted hours annually across the globe.”
The opportunity for data-driven services is huge. Gartner estimates that by 2015 consumers will spend $2.8 trillion annually on digital information and entertainment products and services. The total value that could be unleashed by removing inefficiencies associated with the global supply chain is estimated to be between $750 billion and over $2 trillion.
But grabbing this opportunity will require banks to change their mindsets and model their future on that of Apple, the company behind the iPhone, iPad and iTunes. Rather than continuing to build walled gardens – a strategy that has failed miserably in the telecom industry — financial institutions could instead provide the platform that will allow others to help create new innovative services, placing banks in a central role, similar to that of Apple with its App store.
Twelve banks, including the top five global banks — Citi, HSBC, JPMC, BNP and Deutsche Bank — have been working closely with Innotribe on the business proposition for DAG.
“I think we at Deutsche Bank are certainly willing to support DAG,” says Geert Matthys, Deutsche Bank’s director of client access implementation and services in the global transaction sector. “We see demand from our own clients and also for our own purposes – that is why we are pretty enthusiastic about the initiative.”
ING Bank says it can envision DAG services that aggregate and optimize the financial flows of mid-sized corporations and retail customers, says Saul van Beurden, ING’s CIO, Retail Banking International. ING also envisions DAG providing a faster connection with alternative distribution channels like car dealer networks for car loans, he says.
“Last year the Digital Asset Grid session was a promising new concept,” says Respect Networks Corp. Managing Director Drummond Reed, one of a number of Silicon Valley thought leaders recruited by SWIFT as advisers on the project. “This year, with a real prototype, demonstration apps, and an extensive business analysis, it is much more real — and the banks appear to understand its extraordinary potential. I’m optimistic this could be the breakthrough from financial banking into digital data banking.”
Others have tried and failed to play a key role in securing and disseminating personal data. Microsoft tried to introduce something similar 10 years ago with its Passport and Hailstorm initiatives; Intel, Sun, Oracle and AOL attempted to develop such as service through a group called the Liberty Alliance.
SWIFT argues that it is well placed to offer an independent, open network enabling peer-to-peer sharing in real time of any sort of data. Since 1973 SWIFT has provided a shared data processing and communication link for banks, using a common language for international financial transactions. Providing this service, SWIFT argues, has given the organization expertise in governance, security, creating and policing the rules of the game, trust frameworks and change management.
Digital Data Services
To build out the technology necessary to underpin the DAG Innotribe’s Peter Vander Auwera has recruited a number of technology players to develop the back end. They include Kynetx, a Utah-based platform-as- a-service company, Respect Network Corporation, a company in San Francisco that bills itself as world’s first trusted personal data network, and Germany’s Fidor Bank (see the story on page 11).
Banks surveyed by Innotribe said they see the biggest opportunity in B2B services. One such service developed by Innotribe with the help of Xenapto, a provider of relationship tools, links business projects with investors. Future services could include improving transactions in trade finance between banks and various parts of the supply chain. This data is currently dispersed between the bank, corporates and the corporates’ banks. Having real-time access to this data would reduce the time taken to complete transactions, reduce risk, and lower frictions in the overall supply chain.
“We could already see a new business model similar to correspondent banking, whereby just as we use banks to make payments, we could use other banks to ensure that data updated in DAG is correct and can we trust it – and so – if for a certain type of data we have this kind of correspondent bank to ensure the information is trusted, the business model would be that between the banks there is a fee scheme whereby one bank can basically compensate the other bank for doing that work, and ensure that the data provided by these companies is correct,” says Deutsche Banks’ Matthys. “This would take a bit of cost out of the network because this whole verification and due diligence could be done only once.”
Other types of services being piloted over a prototype of the DAG are aimed at retail banking customers. They include so-called “intent casting,” a means to allow buyers to more effectively and efficiently broadcast their purchase plans and qualify the sellers. An example that will be shown in a film to be aired at Sibos portrays a woman who wants to buy a second-hand motorcycle over a secure and trusted network provided by the DAG. All the information and attributes required for trusted relationships to develop between buyer and seller – proof of ownership, contact info, product history, buyer reputation — are shared and verified through the intent casting app using the DAG. The app manages the secure and selective sharing of verified data at every stage, from connecting parties to fulfillment.
With the permission of both buyer and seller, follow-on services, such as bids to provide insurance to the new owner of the motorcycle, would also be provided. Banks could take a cut for brokering such services.
“Intent casting can truly turn e-commerce on its head,” says Drummond, Managing Director of Respect Networks and an advisor to the DAG. “Rather than you doing all the work shopping, you just tell a smart intent casting app what you’re looking for, and it uses the Digital Asset Grid to find the qualified sellers that meet your criteria — including seller reputation. It’s a peer-to-peer eBay.”
DAG will also encompass the Internet of Things, envisioning a time in the not-too-distant future when an owner might text a motorcycle he owns and tell it to go sell itself on eBay. In this case the machine would trigger the intent casting.
The market for services that support individuals in making decisions on products and services by aggregating relevant data is estimated to account for 5% of total retail sales revenues by 2020, according to Ctrl-Shift, a consultancy specializing in consumer empowerment which has been advising Innotribe on the DAG project.
A key to making this all work is putting consumers and corporates alike in the driver’s seat: allowing them to decide who gets access to their data and under what conditions. Enter Fidor Safe, a personal data store that is being tested as part of the DAG project. Fidor Safe is a personal virtual safety deposit box for an individual’s or company’s data. Through a suite of tools, users can upload, categorize and set permissions on the data and then share data with trusted parties. Business models are still evolving but banks could serve as brokers, charging a per-transaction commission.
Forever Cloud Address book, an application developed by Respect Corporation, is designed to ensure that peer-to-peer connections on the DAG stay up to date. The goal of Forever is to eliminate the time, cost and complexity of address book synchronization. It creates a single store of all address book contacts in the cloud so they can be easily shared across all your devices and applications. Using the DAG, it can create connections between a user’s address book and that of personal and business contacts using Forever. The concept is that change-of-address updates can flow automatically to any party and device on which Forever runs and the connections will be maintained as long as both parties desire to keep them.
Innotribe paints a compelling case for why a network that can securely and efficiently underpin the exchange of all sorts of digital assets is needed and the kind of services that could be created. If banks don’t do it others will: telecom operators such as AT&T and Telefonica are exploring such offerings; Google, Facebook and Microsoft are building cloud-based data sharing services.
But moving DAG out of the Innotribe incubator and rolling it out across the globe will require funding and coordination across industries, says Kosta Peric, head of innovation at SWIFT. DAG “proposes a simple and elegant solution to the problem of online trust, reputation and data ownership,” says Peric. “It is now up to the industry – banks, telcos, VCs, technology partners – to take it forward.”