For a while now I have been thinking about the ultimate disruptor to the banking system. There is a lot of talk about Blockchain, but really I believe it is borderless banking which, no doubt will be enabled by Blockchain technology.
In a more globally connected world, where we are digital Nomad's, why do we bank with one bank in our country of origin? We are hyper mobile and require currency and payments on a global scale. So there are two solutions to this. Either currency becomes frictionless and a single digital currency or we are able to bank across borders and currencies. Either way, there is a use case for Blockchain technologies in either of these scenarios as it provides an infrastructure for digital currency and for distributed payments.
Take this one step further and we as consumers will simply have a digital wallet which is laden with loyalty rewards and the ability to interface to multiple banks or multiple currencies. The choice will be ours.
From a product perspective I can see a couple of big ideas here. Consumers will need a loyalty marketplace, which allows them to transact and trade their various points / rewards for currency and across providers. Secondly, owning the consumer wallet is key, because the consumer will now become divorced from their traditional banking relationships, and free to transact with multiple banks.
How will this happen? Blockchain. The Big banks are busy building a proprietary replacement to the global Swift payments network, which protects their role in the world of banking, as the intermediary. This is despite the fact that Blockchain was specifically designed to remove the intermediary. Yes, BIG BANKS ARE EVIL!! They are redesigning the future to protect their business models. This network will be a private distributed blockchain ledger.
Then in the consumer world, where #fintech #disruption reigns, the rest of the universe will be communicating over public blockchains such as Ethereum and getting on with their lives, without the big banks.
At some point in the future these world's will collide for a period of time, and banks will look for more customers, who are on public blockchains and they will look to connect them to their private blockchains. Now you could ask why would a consumer need or do this?
The short term answer is that they will need access to financial products. Home Loans, Car Loans etc. However, in the longer term these products will be global and freely distributed direct to consumer wallets. This is when we will truly have borderless banking. The real disruption comes when traditional banking products are provided by the public system, aka peer-peer lending on scale leveraging blockchain technologies, with large liquid pools of capital ebbing and flowing across borders.
You could say we are in this state now, with remittance providers and FX providers, but they are busy trying to protect / incrementally transform existing margin rich business models. We see almost 4 remittance business plans per month.
What about regulation? If money and customers are mobile, then surely regulation becomes a single global affair like an internet standard. Well, you can immediately see that the concept of nationalised banking goes the way of the dodo bird or the last flag carrying national airline.
So what is important? AML/KYC? Well, again we see about 4 of these business plans per month. Eventually one would assume with Blockchain that this will either be unnecessary or built into a globally distributed system or rely upon a uniquely identifiable biometric. AML/KYC databases of today are heavily nation state dependent.
BASEL IV? Obsolete and antiquated, well at least for the distributed networks providing global pools of liquidity that I am talking about. Without an intermediary do you really need to worry about capital ratios if you trust and know the counter party with whom you are transacting? The good old dinosaur banks will of course be hamstrung by this legacy legislation which is affecting their ROE and ability to produce a profit from their balance sheets. This is saying nothing of their attempts to contort the future or their ability to truly innovate and obfuscate their own business models. #disrupt.
Of course I am projecting a far off Nirvana, but hopefully you can see the silos breaking down and the emerging models coming. What will be interesting, and what we are interested in investing in, are entrepreneurs and companies who can leap frog through the technological innovation, to capture customers and build products which lead toward Nirvana, generating revenues in new and interesting ways at MASSIVE #scale.
The vested interests of politicians, banks and regulators always falls short of what technology can do and what ultimately consumers want.
The next step will be about consumer arbitrage. Stay Tuned. :)