• by William Mougayar
    Venture advisor, 4x entrepreneur, marketer & strategist. I live in Toronto, curate a lot, blog a bit, and help startups.

Why I’m Being Tough on the Banks Re: Blockchain

Tough LoveYou can’t talk about Bitcoin, Cryptocurrency or Blockchains without taking into account what the banks are doing or not doing in these areas. And I’ve written plenty about that already, including Dear Big Bank CEO, Re: Blockchains: Obliterate, don’t Automate, the mega 67-slide deck (that has 150,000 views on Slideshare) Blockchain 2015: Strategic Analysis in Financial Services, and more recently Blockchain Inside Regulations Is NOT Innovation.

That last article received some push-back from maybe 5% of the readers (my estimate) who took issue with points I made, and they defended the banks and their technology innovation role.

The various feedback could be classified anecdotally by the following categories of comments:

  1. I don’t understand innovation (yeah, that’s directed at me)
  2. The banks can innovate within regulation because disruption comes in shades
  3. Look, they have innovated; we aren’t licking as many stamps to pay bills
  4. They are spending lots of money on blockchain initiatives, even more than VCs


In this post, I’m going to rebut these objections, but first, here are the real reasons why I’m giving the banks a hard time regarding blockchain. It’s because I’d like them to succeed with the blockchain, but I want them to push themselves further in terms of understanding what the blockchain can do. I’d like them to figure out how they will serve their customers better, and not just how they will serve themselves better. I’d like them to innovate more by dreaming-up use cases that we haven’t thought about yet, preferably in the non-obvious category.

So, I am giving the banks some tough love, because I know three things about them:

  • They aren’t going anywhere any time soon, so we need to forget about predicting their demise
  • There are some very smart people working for the banks, but they have to figure things out for themselves
  • Startups that mount direct attacks (verbal or product) against the banks are not going to be successful, so I’m dismissing those efforts


Now, let me address the above points:

Knowing and Defining innovation

I have been around technology-driven innovation for a very long time, and have seen and been involved in business and technical innovations in large and small companies. My definition of innovation is disruptive innovation, i.e. innovation that creates new markets and users/customers which could not be acquired otherwise. Innovation is harder in large companies than in smaller one. And it’s even more difficult when a large company is regulated. I don’t see many shades of innovation. Either it moves the needle, or it doesn’t.

Innovation Within Regulation

Innovating within regulatory frameworks is an oxymoron statement. Being creative and hacking around regulation is hardly innovation. It is creativity and it might yield marginal gains, but it doesn’t often lead to breakthroughs. But I’m willing to be proven wrong if we start seeing use cases that point to the opposite.

In my opinion, disruptive innovation is the only type of innovation that produces big results. The difference is between wanting to make small progress or large gains. Before the business process reengineering (BPR) days, it was all about TQM (Total Quality Management), i.e. aiming for step-wise improvements. Every year you were supposed to make small improvements, but BPR came along and the message was: No more small improvements, because you have gotten so far with it. Now, you need to innovate with a clean slate, and re-think all your processes. Don’t just improve them. In other words, it means destroy and re-invent.

The blockchain carries potentially the same message as BPR, if it is applied in the right places. And disruption doesn’t have to be a bad, scary word, as long as it carries innovation that expands your markets by an order of magnitude, not by a few percentage points.

I’ve heard enough banks justify why they can’t do something by citing regulations or customers not asking for it. But banks haven’t been very good at acquiring new customers. They’d rather focus on keeping the existing ones, which they are better at.

Look, They Innovated

Someone thought that we have come a long ways because we’re licking less stamps to pay bills. No disrespect to the author because he agreed with my article otherwise, but I found the stamp analogy worth a mention, or a chuckle.

Banks are Spending Millions on the Blockchain, Therefore It’s Innovation

That one came to me via email. The spending part is correct to an extent, but not the innovation linkage. Many banks are investing internal resources on a variety of blockchain projects as well as funding external initiatives. That’s great, but we can’t compare apples and oranges. We know well that big company investment numbers are super inflated due to their overhead costs and FTE accounting. It’s like saying banks are spending billions on digital technology. But these dollars are not the same as venture capital dollars that fund scrappy startups who work solely on developing new products and carving new markets.

Back to the innovation vs. regulation debate, I maintain my position that innovation comes first, and regulation should lag. Therefore you need to innovate outside the box of regulations because it’s a lot easier. Then you can bring it into the business if it makes sense.

And regulation can be a tricky endeavour. Sometimes we regulate for the .1% bad actors and impose these same regulations on the 99.99% good actors. But there is a new school of thought that prefers to monitor more intelligently instead of regulating more heavily, and the blockchain allows that, if regulators allow it.

It is a lot easier to start innovating out of the regulatory boxes, both figuratively and explicitly. Some banks are starting to doing it.

Simon Taylor, head of the blockchain innovation group at Barclays and someone whose views I respect, summed it up well by leaving a comment on my previous post. He said: “I don’t disagree the best use cases will be outside regulated financial services. Much like the best users of cloud and big data are not the incumbent blue chip organisations. Still their curiosity is valuable for funding and driving forward the entire space.” I very much agree with that point, which is why I have hope some banks will contribute to the innovation potential of the blockchain in significant ways, as they mature their understanding and experiences with this new technology.

My ending note to banks is that innovation can be a competitive advantage, but only if they see it that way. Otherwise, they will dial it down to fit their own reality which is typically painted in restrictive colors.

  1. Dave Harrison


    Keep up the good work. With all due respect, Preston counts as 10% (5% for him and 5% for his marmot).

    Kudos to all parties for keeping the heat on this Regtech/Fintech/Fantasytech debate. There’s a pony in here somewhere… keep digging. Phew.


    David Harrison

    Here’s our latest take on all things Byrne-ing Man “Blockchain Inferno”: http://tradewithdave.com/?p=23858

  2. Natarajan C

    I agree. The very reason we all are talking about blockchain today is because of Bitcoin. I couldn’t have seen an innovation as significant as Bitcoin coming from a bank.

  3. William Mougayar

    Haha. Thanks Dave. Yes, I have seen the Byrne baby burn post…Funny!

  4. jamie247

    Thanks for taking the time to respond. Glad to be in the minority! 😉

    In my mind there are four classes of innovation: incremental, breakthrough, transformational & disruptive.

    To focus on the semantics you are entirely right to say a bank can’t do ‘disruptive’ because typically this is an external and destabilising
    market force. But I think you are wrong to say ‘incremental’, ‘breakthrough’ & ‘transformational’ aren’t ‘innovation’.

    To de-construct the argument at a high-level.. keeping in mind the headline statement is presumably meant to generate debate.. which it has. My
    challenge is I think your position is a subjective not objective view on the blockchain space.

    It is entirely understandable if your investment portfolio is built on ‘disruptive only’ models e.g. OpenBazaar (a wonderfully powerful initiative
    btw) this would be the only kind of innovation that’s important to you. But to Preston and the banks he may or may not serve ‘transformational’ innovation
    holds lots of value. In fact to most enterprise in any form of regulated market the same applies its why at OutlierVentures.io we co-develop blockchain ventures with incumbents which we believe as an approach, done in the right way, will allow us to out scale the competition.

    Banks as you point out, slowed by regulation, struggle to be the initiators of ‘breakthrough’ let alone ‘reformative’ innovations and struggle to even deliver on ‘incremental’ innovation like most Enterprise. Almost 80% of digital transformation projects are likely to fail. What’s different about blockchains is that they force the consortium approach realised by the likes of R3 and the even wider the Linux initiative. This de-risks that process as they collectively solve problems at the soon to be commoditized ‘incremental’ level to free to move up the innovation value chain.

    Like most people I don’t have a desire to see banks, as they are today, succeed but one thing is clear to me from speaking to enterprise more generally about blockchain tech is that, to be at their most effective, they are ‘market-wide’ solutions. To be ‘market-wide’ requires an almost impossible number of stakeholders (which includes regulators) to be engaged, integrate into and with through some form of consensus.

    Sure the Bitcoin Blockchain is disruptive but to date its true impact as a specific innovation to any given market is minimal. To be clear I don’t think it’s going to go away and I do think it’s needed for the whole. However the impact of blockchain technology that will evolve from it when it hits the places the majority of value is held (and therefore has to be regulated), in the case of banks assets and transactions, will be much more significant. It will only be ‘transformational’ on your spectrum but will nevertheless drive enormous value for markets and economies as a whole non more so than a dramatic increase in trade and liquidity.

    This is where the ‘transformative’ power of blockchains really kicks in. As regulated entities they must make sure they customise the innovation to work to their markets needs. Let’s not forget outside of our early-adopter echo-chamber for laggards (the majority of the market) ‘unregulated’ is a major barrier to anything close to mass adoption. They are regulated for a reason which is typically to protect consumers and the economies they serve… I fully appreciate things like banks have systemically failed but regulators won’t and shouldn’t stop trying.

    I like to use the idea of a ‘health blockchain’ something I have worked through conceptually with a large enterprise already. Similar to R3 it would need a consortium of players to realise working in conjunction with a large integration consultancy network to onboard: hospitals, insurance companies, personal and healthcare device manufacturers & health cloud services safely and securely within regulatory requirements. This is very difficult ‘disrupt’ from an unregulated position outside of the industry as it is today. I would argue impossible.

    In summary: heavily regulated markets have a partial firewall to ‘disruption’, beyond the dis-intermediation of inefficiencies, but are likely to be forced into a reactive ‘reformation’. Maybe I’m being a dork for semantics but a healthy debate is always fun.

  5. William Mougayar

    Thanks Jamie.

    I think the degree of innovation is a good discussion, but incremental gains typically hit a wall, and you need a break in the trajectory at some point.

    I’d love to see more specific use cases and better understand their impact both on the input side (i.e. changed something) and on the output side (i.e. produced the following new results). Especially if they are breakthrough or transformational, according to your descriptions.

  6. XMLGold

    There are governments around the world and corporate names that are interested in the knowledge behind blockchain but blockchain is a part of bitcoin and you cannot think of it as how it is. I first learned bitcoin when I was looking for an exchange for another e-currency that i own. I saw a bitcoin on their listing (xmlgold.eu) and did my research and now I am here.