I am in Estonia today, giving a lecture on Digital transformation, and I want to pay homage to this Country that is really active in trying out many aspects of the Digital Economy. They have been able not just to move plenty of services and processes on line, including the possibility to become an e-resident (allowing foreign nationals to take an Estonian Identity in the cyberspace). More than that. They have been able to create a digital culture nurturing entrepreneurs and they are actually also “exporting” them!
Two Estonian entrepreneurs, Kristo Käärmann and Taavet Hinrikus, back in 2011 founded TransferWise. They observed that there is a big inefficiency in money changing. You go to a money changer to buy a currency and you are charged X. Change back that money into your original currency and you get Y, a value that may be 20% less than what you paid in the first transaction. This difference goes to the money changer and pays for its cost plus a margin.
The question is: won’t it be possible to slash the cost by moving to the cyberspace?
This is how TransferWise was born. For a person wishing to change US $ into Euros there is a person wishing to change Euros into US $. TransferWise makes the match possible in the cyberspace basically slashing the transaction cost to zero (you have to pay a fee for the transaction and that is the way TransferWise makes money).
They have readapted a dating application to money exchange. It is actually pretty similar, it is about matching offer and demand! Actually. all economy and marketplaces are about matching offer and demand. The difference when you move to digital it that the marketplace is the world and you have no geographical separation between the offer and the demand. More than that: the transaction cost goes to zero (or is negligible). Transforming the niche market of the real world (where you have a physical bank serving very few customers at a time in that particular location) into a huge market you are also increasing the probability of matching offer and demand and decreasing immobilisation cost (having to keep currency in the drawer waiting for somebody to come and ask for it).
Money and money services are moving to the cyberspace and in the shift are changing the rules of the game and killing jobs.
- Artificial Intelligence application is reducing headcount in support centres, eventually replacing them
- No more need to be physically present at a branch for signing documents, everything can be done securely, on line
- Financial consultants are flanked and eventually replaced by robo-advisors, chatbox will provide continuous and personalised assistance to clients
- Credit rating and trust is already becoming assessed by software and will complete replace current human based procedures with instantaneous assessment of qualification criteria for credit card condition, mortgage, lending…
- Full transaction monitoring and security via blockchain, skipping the need for the middleman.
As Bill Gates said some time ago: Banking is necessary, Banks are not.