Blockchain and banking: Change is coming
The debate surrounding blockchain technology and the future is almost as old as the blockchain itself.
Since the technology first emerged, its potential to go far beyond just supporting cryptocurrencies, and bring about a fundamental change in the way people transact financially, has been glaringly clear.
Although there are those who argue that there is no real comparison to be made between blockchain and the current fiat-based financial systems, the fact is that the two now exist side by side across the world of financial services.
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And while it’s not a competition to see who comes out on top, the transformation of legacy financial systems, processes and infrastructure is inevitable.
Trust
The great thing about blockchain, and the reason it will undoubtedly transform the world of financial services, is that it enables and facilitates trust between the parties involved in any transaction, without the need for third parties to do so.
Although trust is the glue that holds financial systems together, there is no other technology or process currently active in financial services that gives people the same sense of confidence that a transaction they initiate will definitely be completed, in the way they have intended, and within a reasonable time frame.
Adding to the compelling argument that blockchain will eventually become the foundation upon which most financial services transactions are built is the immutable nature of the technology.
Fraud and cybercrime have become a scourge on the “traditional” banking landscape, and this has eroded confidence in most of the legitimate participants in that landscape.
The stage is certainly set for a shift in thinking that makes it difficult, if not impossible, to tamper with a financial transaction, or with the historical facts of that transaction.
And blockchain is already ushering in that change.
Pace of change
But while there are moves towards blockchain in many areas of financial services, particularly payments and transfers, the full-scale transformation of the industry, while inevitable, is also likely to be gradual.
There are many crypto and blockchain advocates who would argue against that statement.
However, the reality is that the world’s financial services industry is simply not at a point where it would survive an overnight transformation to digital assets and blockchain-based processes.
The transformation must follow a natural progression, based on ever-increasing levels of redundancy of historical technology and systems, increasing disruption of those systems, and ultimately their evolution to become more efficient, more transparent, more robust and more stable. .
Transformation is likely to be user-driven
As is already evident from the sections of society that have been the fastest to adopt the new payment and transfer technologies enabled by crypto and blockchain, this transformation process is likely to be a bottom-up one.
One only needs to look at the markets in Africa where crypto has taken off, such as Nigeria and a number of East African countries, to recognize this as truth.
It is the people in these developing economies who are the primary driver of crypto adoption.
The phenomenon is completely understandable. Members of lower LSM groups lose the most (relative to their incomes) from inefficiencies baked into many current banking systems.
The wealthy, on the other hand, have the luxury of choice, and that shields them from the same inefficiencies and economic losses.
It also gives them little incentive to champion the changes that the established systems must undergo.
But the change will come. Driven, ironically, by those who have little interest in crypto as a way to create wealth, and any interest in crypto makes the transactions they need to make easier, faster and far less expensive.
Of course, demand for change is a catalyst; it cannot bring about that change.
That is the role of those who have the capacity to deliver it, which in financial services transformation is the financial service providers themselves, both new and old.
Resistance, and why it is a problem even for the resistant
One of the major problems inherent in this transformation, however, is the resistance to it that is still evident in many spheres of industry.
This resistance typically takes the form of a resolute determination to cling to the fiat realities that have dominated financial services until now, and on which, to be fair, most financial institutions have built their success over the past century.
This resistance is a problem not because it in any way slows down or hinders the transition to digital currencies and blockchain, but rather because it prevents those who do not want to let go of their fiat past from taking advantage of the new crypto reality; and more importantly, pass those benefits on to their customers.
Ironically, this resistance may well lead to what most financial institutions fear most, which is that they will end up being little more than value managers or, at worst, transaction downpipes.
This need not be the case. There is certainly enough room in the world of financial services for crypto and fiat systems to coexist, at least for the foreseeable future.
Much as mobile phones have still not completely replaced landlines, fiat and crypto will continue to exist, probably for a long time to come, on the same spectrum of financial services.
However, it is a transitional spectrum, meaning that the balance will shift smoothly.
And while the shift will be gradual, it will be relentless.
Which makes it imperative that any finance organization that wants to remain relevant and competitive for years to come invests less in resisting it and more in embracing it, adapting to it – and actually helping to drive it.
Listen to this MoneywebNOW podcast with Simon Brown (or read the transcript here):
Hannes Wessels is country manager of Binance South Africa.
