andreas dombret : digital natives? the future of banking in an era of digitalisation speech by dr andreas dombret, member of the executive board of the deutsche bundesbank, at the " unlock the block " hackathon, hosted by the university of cape town, cape town, 24 january 2018. * * * 1. introduction ladies and gentlemen it is a pleasure to be here in cape town and also to speak at a hackathon. central bankers in general and banking supervisors in particular rarely get an opportunity to address such a technically adept audience. still, to those of you who are participating in the event and who received their first day of blockchain training today, i would like to say that the following session is going to be quite a non - technical one – even though we at the bundesbank have done our own research on the promising blockchain technology and are always eager to discuss insights with experts such as you here today in this room. we even launched a blockchain project of our own in cooperation with the deutsche borse, the stock exchange in frankfurt in 2016. today, i would like to make the most of you and today ’ s audience, by considering a wider question : why exactly is it so difficult for many banks to fully embrace the many opportunities presented by the digital era and become successful? numerous issues have already been addressed at length, such as the role of it legacy, the question whether banks are frequently “ too big to innovate ", and even the “ economics of qwerty ", an argument about path dependence. i would like to focus on a different subject, namely the role of “ digital natives ” and their conflicts with conventional bankers. how does this relate to successful banking in the digital era? 2. " digital natives ” and “ digital illiterates ” – a clash of cultures when i say “ digital natives ", i am not just referring to those born since 1980, as some have defined the term1, but to people with a certain attitude towards the digital world. i consider most folks here in this room to be digital natives – at least by profession or by choice. and i expect you won ’ t still be mulling over whether a blockchain could generally be useful or not. to digital natives, the upside is perfectly clear. digital natives are focused on the opportunities of the digital age. everything that is imaginable is worth considering. but the financial industry is by no means inhabited

exclusively by digital natives. at the other end of the scale are those who take quite a dim view of most digital innovations. and there are others who might generally be considered “ digital friendly ” but have never actually crossed paths with programming code or network plans. i guess this is true for the vast majority of people – i would count myself to this cluster. this entire group might be labelled “ digital illiterates ". the problem with both groups is that when they interact, there are bound to be frictions. for example, you often hear it staff complaining about fuzzy communication with non - specialists. conversely, experienced bankers might also have a hard time with digital innovators, simply because the latter lack an understanding of banking. so the question is this : if digital natives are from mars, and old - style bankers are from venus – 1 / 6 bis central bankers'speeches will they get along? or could the future of banking in an era of digitalisation possibly belong to just one group? my short answer is this : they don ’ t get along naturally – but they will need to. let us go through some observations about the clash between these two cultures. for that purpose, i believe it helps to see things from each group ’ s viewpoint. 3. how digital illiteracy might hamper financial institutions let me begin with the perspective of digital natives as i have defined them. and i will concentrate on three predispositions of non - specialists which, to my mind, are most substantial for financial institutions. 1. it matters are oversimplified 2. it risks are underrated 3. digital opportunities are underestimated you may have witnessed some of these biases yourselves. let me give examples of each of them from my experience of banking supervision. oversimplifying it matters is a common attitude outside itdivisions. if you ask managers about their interaction with the itdepartment, something you might hear them say, time and again, is this : “ what they should be doing is finding an easy solution for every problem right away! what they are actually doing is burning money! " all of us who haven ’ t worked in an it department, let us be honest : we all have thought that way already. from the perspective of the it division, the same interaction would often be characterised as a failure due to “ digital illiteracy ". it experts are already grateful to encounter non - specialists with enough imagination to grasp what can be done with