Finance and banking has seen its fair share of innovation over the centuries, and Bitcoin and its blockchain technology are already making a new chapter in this history. To get a better sense of how the industry views this innovation, I interviewed the head of Technology Risk for the Wealth & Investment Management portion of Wells Fargo Bank, Jimmie Lenz.
A Bank Insider Speaks
Besides just being an interesting guy to have a drink with and chat philosophy, Jimmie’s background and experiences give him the unique perspective of how senior leadership in banking and financial institutions view Bitcoin and blockchain technology. He has been at the forefront of some of the biggest innovations in finance over the last few decades, and is no stranger to thinking in deep ways on how to make fintech useful.
Despite there being some big players talking about blockchain these days, from central banks, to investment banks, to consulting firms setting up their own blockchain teams, the innovations that make a difference will likely come from customer preferences.
Like a lot of other things in finance, there won’t be some large consortium that makes the decision. I believe it will be a large customer.
Jimmie likens blockchain innovations to the adoption of electronic trading being driven by a single large customer picking a protocol that drove a cascade of adoption. Yet with cryptocurrencies, there’s big potential for bottom-up innovation.
It may not be a big institution or a big bank, or even a big corporation; it may be an amorphous big group of customers.
Banking the Unbanked
Yes, it’s the 21st century, but, no, not everyone has a bank account. Not even close! It’s estimated that about half the world’s adults are unbanked. Bringing this large swath of humanity into global markets could be Bitcoin’s biggest use case by essentially piggybacking on the mobile banking revolution.
So, right now in the developing world, a lot of banking takes place via mobile phones. And it’s given access to millions and millions of people that don’t have access to a brick and mortar bank, or a formal bank as we think about it in the West.
Integrating the disenfranchised into global markets could have beneficial spillover effects as capital flows to remote areas where previously people would have had to migrate to liberate their productivity.
You’re bringing people into a world that they might have had to geographically leave, or physically leave the environs that they’re used to, that they live in, and go to the West.
Finance is One of the Most Creative Industries
Bitcoin has the potential to be massively disruptive to certain areas of finance, but does that mean that traditional financial firms should be afraid? Jimmie doesn’t think so, noting that finance is one of the most creative industries that has seen plenty of change.
When we changed to electronic trading, that was going to be the end of Wall St., and then when we changed from eighths to pennies that was going to be the end of Wall St., and when we had more regulation, that was going to be the end of Wall St. None of these are going to be the end of Wall St.
He does note that the players may change. Like any other competitive market, those who adapt will likely dominate.
The Possibilities Are Endless
Noting that the most useful applications of the technology aren’t even likely being thought of yet, Jimmie rattled off a handful of interesting ideas, such as what Fluent is doing with supply chain finance, the potential for making syndicated loans more transparent, and bringing asset settlement times to something that makes sense for this century.
Supply chain financing is really interesting because people are still using things like letters of credit and those have been around for about 400 years now. There’s got to be something more efficient than that.
Decentralizing Financial Markets
Speaking about the Bitfinex hack, Jimmie sees promise in decentralizing financial markets, but notes that this isn’t likely to happen at scale anytime soon. Experiments like Shapeshift, Bitshares, and Blocktrades are useful and interesting, but regulators and major players in the markets aren’t likely to shift en mass to a decentralized model just yet.
“Is the world ready for this yet?” he continues. “No! I’m a realist there, but would decentralized exchanges be feasible on a large scale experiment? I think so, I think they are because those will illustrate that the safety is there, because we’ve seen a couple of pretty big hacks now, people have lost real Bitcoin because of it, so I think that if these exchanges are able to put this into practice it would be a great experiment and it would be a great illustration of the security that blockchain seems to offer.”
Blockchain for Your Business? Start from Scratch
With this technology jumping to the spotlight across industries, it’ll be tempting for firms to try to incorporate cryptocurrencies or blockchains into their business models. Jimmie urges caution and some advice on how to think about it:
If you say gosh I have this process, how can I integrate blockchain, or how can I integrate cryptocurrency? It’s the wrong way to think about it. You have to think about it as if you were starting from scratch.
Those were some of the big highlights to me, but you can check out the full conversation by listening to the audio file below. It’d be great to continue the discussion on any of these topics by commenting below or reaching out directly to either Jimmie Lenz or I over Twitter.
What do you think about Jimmie Lenz’ views on blockchain technology? Let us know in the comments below!
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