Fintechs, Banks, Digital Currencies and the Bottom Half of the World

Banks need Fintechs to face Digital Currencies

If you would like to read a basic introduction to the blockchain technology click here.

Banks are facing a big threat which has the power to destroy nearly all of their profits and cut as many as 50% of all jobs in the banking industry. This threat is the blockchain technology. The blockchain technology came to life with the introduction of Bitcoin. It is providing clear advantages over the traditional banking system. These advantages range from high security, super fast speed, to extremely low costs. The blockchain technology not only enables the emergence of cryptocurrencies but it is also the foundation for a democratization of the stock, bond, and security market. The blockchain technology is attacking banks in nearly every aspect. This is also the reason why all 200 largest banks plan to implement blockchain technology by 2020. Some are experimenting with Ethereum while others try to create their own blockchain environment.

Endangering more than Jobs

Santander InnoVentures is estimating that the blockchain technology is the key to killing inefficiencies in the banking sector. They estimate that the “distributed ledger technology could reduce banks’ infrastructure costs attributable

to cross-border payments, securities trading and regulatory compliance between $15–20 billion per annum by 2022” Santander InnoVentures. This gained efficiency which is gained by the implementation of the blockchain technology will primarily affect millions of jobs worldwide. While Santander only focussed on the advantages of the blockchain technology for banks, it did not look onto digital currencies. If digital currencies will gain in popularity within the next years, all revenues of all banks are severe in danger.

The Thing about Micropayments

A big advantage of digital currencies like Bitcoin and Ether is that they allow micropayments. Currently, banks and other financial service companies like MasterCard and Visa are simply excluding more or less half of the world population. Poor people are simply seen as unprofitable and thus they don’t have access to today’s banking system. Digital currencies allow everyone to make any transaction. They even allow transactions of half a cent if wanted.

Pivot Point of Modern Banking

Here we stand at a pivot point in the history of modern banking. On one side we see mighty and large banks who serve the rich side of the world. On the other side, we see cryptocurrencies which are gaining more in more in popularity. This point in time is so interesting because around 3.9 Billion people are using actively a mobile phone today Ericsson, 2016. Everyone has thus the ability to use cryptocurrencies such as Bitcoin and Ethererum. Cryptocurrencies have an infrastructure which makes them a great way to exchange value for everyone in the world.

Banks Need to change their Status Quo

What banks need to do as soon as possible is to enable banking access to the poorest people in the poorest countries. If banks want to survive they need to stop dictating monopolistic prices. Instead, they need to offer their banking services to the other half of the world.

While 3.9 Billion people worldwide are actively using a mobile phone today, 2 billion people in developing countries are still lacking formal banking services. If banks in corporation with finch companies don’t start to offer their services to these people they will lose in competition with cryptocurrencies and other blockchain based financial services.

Fintechs are the Key

The infrastructure in developing countries is not comparable to the Western one. There are already many people who have access to the internet but some still need to rely on GSM services. In theory, you can use cryptocurrencies with GSM or a mesh network. In reality, every significant digital currency requires an internet connection. This might change if mobile phone users establish a Bluetooth-based mesh network in developing countries. Banks and Fintechs need to develop their own infrastructure in developing countries to succeed and expand their customer base. This might include non-monetary business models as well as GSM or SMS based banking for everyone. Banks need to stop dictating monopolistic prices for their services. Fintechs have the chance to bring modern banking services to the developing world. I hope the blockchain wins.

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