In this science fiction exercise I make some assumptions of what technologies will become mainstream in the medium term and what this will do to the current financial services landscape.

I am being deliberately vague on time lines as it is impossible to predict when change will happen. By "medium term" I am thinking in the 3 to 10 year time horizon that venture capitalists and start-up entrepreneurs need to build substantial value. This is the start-up timing horizon.

We use the start-up timing horizon, as this is not just science fiction fun, this enables scenario planning. Or, to put it in more popular terms, this enables you to "skate to where the puck is going."

Likely To Happen In Next 3 to 10 Years

1. P2P Lending (and related models such as VRM and cash flow lending exchanges) will take a major share of the consumer finance business away from the current banking system. Probability: 50%. The wild card is regulatory protection for the incumbent banks.

2. Open Data will replace Proprietary Data in the same way that Open Source replaced Closed Source. Which means that there will still be Proprietary Data but that Open Data (Creative Commons license, available online as Linked Data using commonly accepted standards) will be the default. This will be a major blow to companies that make their money selling Proprietary Data. This will enable entrepreneurs to offer totally new value propositions. Probability 80%. It is already happening.

3. All public companies will report to the SEC using XBRL. Probability: 100%. The SEC is telling them they have to do this. We can even put a definite time line on this: by the end of 2012.

4. New analysis tools will come to market that are as easy as using a spreadsheet that allow the automated creating of comparables across market sectors. This will replace manual labor. Probability: 90%. We can only see some crude early attempts but given that XBRL reporting is 100% certainty, the market opportunity for this is very big, so the tools will come.

5. All major global markets will follow the SEC mandate (if they have not already done that; some are ahead of the US). So these comparables can be across geographic markets and exchanges. Probability: 90%.

6. The derivatives market will become much more transparent with open data and open models. Probability 90% (due to regulatory pressure).

7. Some combination of open data, open models and expert sourcing will replace the current credit rating agencies in the corporate bond market.Probability: 80%. This is not simple but there is a big pain point and many smart people are going after this prize.

8. One of the new social media investing ventures breaks out into the mainstream with a model that somehow reconciles the needs of a) low fees b) safety against scams c) upside potential. Probability 30%. This is a tough nut to crack but the prize is huge.

Knock On Effects

This will dramatically change the financial services landscape. Financial services are the artery of the economy, so this matters to all of us.

The most disrupted will be traditional banks. With their lending cash cows under threat from new models, their profits will shrink. They will become like regulated utilities managing the basic checking account and payment processes.

The economy will benefit enormously from lower interest rates and higher savings rates.

Wall Street firms will continue to dominate corporate banking, but this will be a back to the future model, with an emphasis on relationships and not just transactions.

Hedge Funds will do well as they always do in times of great change. There will be a move to a "Hedge Fund long tail" (money managed by individuals and small firms with everything other than trading decisions done via online platforms).

These Hedge Funds will be prevented by regulation from being in the consumer finance business and vice versa. Nor will corporate bankers remain active as Hedge Funds, because their corporate banking clients will demand an end to conflicts of interest.

This wraps up the first 3 posts related to Financial Services. We will return to this market in a month after talking to more of the current innovators.

Next in our series is B2B Media.