Your correspondent recently went to Isle of Man for the Islexpo 2018 to discuss the financial services sector, including an interview with the head of e-business operations for the government.

The head of e-business operations for the Isle of Man Government has said that it will look to combine its work on bitcoin and blockchain with the financial services sector.

This comes after HSBC said it had completed the world’s first commercially viable trade-finance transaction using blockchain in early May.

Brian Donegan, head of e-business operations, spoke to this publication about the future of tech in banking and what’s next for the Isle of Man's e-business. The interview took place prior to the Isle of Man’s exhibition in May. 

“Financial services would be the next obvious one for us,” said Donegan. “To have a demonstrable business that transforms financial services whether that be traditional offshore banking or investment funds. To use blockchain technology to actually transform that business would be the icing on the cake for us really. I think what we have done over the last several years is we have created a regulatory environment and sandbox development environment. The word is out there that we are open for business and new opportunities. We welcome people to call us up and talk to us and see if there are any synergies to work with. We think financial services would be an absolute groundbreaker.”

Blockchain, the distributed ledger technology underpinning crypto-currencies, rose to fame in 2009 as the technology underpinning bitcoin, the first and most well-known crypto-currency. Last year saw bitcoin’s meteoric rise as its value rocketed from under $1,000 to over $20,000 in less than a year, before retreating back to around $7,000 in today’s market.

While banks have generally steered clear of crypto-currencies in spite of their fame, firms have spent millions of dollars exploring the best use cases for blockchain technology in the hope that it could save them billions of dollars a year in the long run. In April, this publication reported that Barclays called blockchain “a solution still seeking a problem”, and it did not see a widespread adoption in the near future.

Donegan spoke about what the Isle of Man thinks could come next for blockchain technology in the banking world.

“We think on the B2B side, a large bank could take that technology transform their current systems,” said Donegan. “It causes all sorts of questions – including what do you do with the people you don’t need anymore? You are effectively replacing them with one piece of technology. In the B2C side, we see in our research 21-year-olds don’t see the need for a traditional bricks and mortar bank because it is irrelevant. They have their own monetary sovereignty, and if you have that, you don’t need someone at the bank telling you that you are beyond your means. You have the ability to be able to generate money and be able to spend and retain it. But you do it by owning your own private keys. And also you are establishing the notion that you have your own keys, and know about the nodes. But I think that is coming, the commoditisation of tech means things will become cheaper. And people will end up taking control of their monetary sovereignty, it just makes complete sense."

The rise of tech
The banking industry including the wealth management sector is starting to slowly meet the demand of the “Millennials” who want to bank digitally.

One cannot mention Millennials without talking about their demand for technology. According to the Deloitte Millennials and Wealth Management study, 80 per cent of this population cohort own a smartphone, and at least half of Millennials want to use one for their financial planning, according to Legg Mason.

Donegan spoke about the rise of fintech in the financial services sector – and what needs to happen to meet this demand.

“The transition of tech in banking is underway,” said Donegan. “We have seen banks saying it is going to take too long to engender this inside the business, so we have seen firms identify a business outside and buy it. This is almost creativity by acquisition, and once they made by the purchase –they need to retain the integrity of the acquisition, as banks love to control things. It is actually is about buying the technology, and letting them get on with it without interfering too much. And that way banks can get access to new technology. I think that they have to figure out a way to think of a model for the future that is going to be relevant to that generation. We know that these individuals are rejecting the old banking model, and they do want an old bank in their future – they see a device which has a digital wallet and e-banking, with control of their monetary sovereignty. Maybe the answer for the banks is that the real value in twenty years’ time is about ownership of the tech. Because it is the tech that has the ability to use their devices to bank how they want. There is a fundamental shift underway and the banks have to wake up to what that is.”

Donegan added: “The challenge is educational because there is a huge amount of confusion, people don’t really understand what this technology is, and they conflate what is bitcoin and blockchain. There is probably two things that need to happen to speed things up, the two factions in bitcoin need to stop fighting and working together, and I think somebody needs to understand that there is a real education process needed to be done to make people understand the tech. But nobody is doing that because the technology is decentralised, there is no point of control.”