There is a revolution going on that – it seems to me – banks haven’t much noticed. The revolution is in how low the barriers have become to create desirable consumer electronics. So low, that even if you don’t know anything about what you’re doing, you can do it.
I first stumbled on this last year when I was out at the Microsoft Research labs in Cambridge. They were doing lots of work that involved wearable sensors, and these things looked like you could just walk into a shop and buy them. I wanted to know where they got all their great looking hardware: "Oh, we just use an engineering firm down the road, it takes them a week to make anything we need". You would not believe the off-hand tone this researcher used, as if what I was asking was of so little consequence that the question was a waste of oxygen.
I was amazed, having imagined teams of people, just like the ones we have to have when we do software in the bank. So I subsequently investigated this claim and found it to be true. There are engineering companies that can turn around hardware for you in a week.
Actually, doing hardware is way less expensive than building software. It is in an interesting reversal of the otherwise universal maxim that bits are cheaper than atoms. Apparently there are all these standard "reference platforms" and they just throw them together in the form factor you need.
So we investigated some more, and discovered the whole industry has moved to an ODM – Original Device Manufacturer – model. You hand over the specification and design (that was likely done by some local engineering firm), and these contract production lines turn out the volume of product you need.
We wanted to know what it would take to miniaturise to an unprecedented level. Apparently you do something called custom silicon: they take your reference design and make dedicated chips or something. The price is higher than off the shelf, but nothing as high as you’d expect.
In other words, you can outsource everything about hardware. You can make sexy consumer electronics. And you can do it very, very cheaply.
Now, doesn’t that pose some interesting options for banks, who are normally limited to utilising the devices that consumers have bought elsewhere?
The most famous example I can think of a of a bank doing hardware was 1950 when Bank of America collaborated with Stanford University to create the first business computer. That was a multiyear effort without any certainty of success. When you do hardware today, you don’t have any of those costs or risks.
If I needed any reinforcement of this, it came when one of our favourite vendors responded to a query about biometrics with a custom device. I couldn’t believe it. They didn’t have exactly what we needed, so they made it for us – in about a week – and then furnished us with about a dozen of them for an internal conference we are doing today.
The fact that hardware can now be a sales tool implies that it has a very, very low price of entry. Low enough that banks could design their own consumer electronics to support the customer experience, if they wanted. You can imagine the situation: you choose your bank because its gadgets are the most desirable. Isn’t that what happened with iPhone? People changed their phone company just to get one.