I don’t know about you, but I’m really energized by the enthusiasm the fintechs are bringing to conversations in the payment industry today. Many of their ideas are forward thinking and contagious, and it’s an exciting time in an industry that has been very internally focused since the financial crisis. There are so many smart people in fintech, many with no preconceived notion of how payments “should work”; now it’s easy to listen and debate new topics with a receptive audience coming at the topic from different places, and you become more and more impressed with their vision of a future driven by technology. Now how do we merge this enthusiasm with our legacy subject matter expertise and experience?
I’ll be honest: I was at first skeptical about what the fintech startups could bring to the table. But I kept an open mind, which wasn’t easy as many who know me will attest to. After many discussions/debates with these new visionaries, I began to see the real potential of how these new technologies can help us rethink and reshape certain age-old assumptions we have about delivering payments. Today we have an opportunity to change the legacy thinking and infrastructure in a way that we couldn’t have imagined five years ago.
Blockchain is the hottest topic around. Right now in Payments there’s a broad spectrum of startups developing solutions using blockchain technology to deploy new solutions. From my vantage point, I view a few as game changers at this stage of the innovation cycle. For payments specifically, this could be a future way to more efficiently manage our BSA/AML and OFAC obligations; it’s much too soon to tell, but it’s an idea that sounds promising.
There are also blockchain companies that are promoting change so disruptive that it will be impacting our lives for the next few decades - the entire Internet Of Things discussions fall into this category. And more specific to Payments, a handful of companies are already bringing their products to market in the global payments space - specifically around remittances, micropayments and addressing financial inclusion - using distributed ledgers and bitcoin. Ripple, a company with a broad following, has made great strides in the last year partnering with banks to advance cross-border payments in a way that will benefit a large number of consumers and businesses. They may be considered today’s leader in this space, but many others are focusing on this specific workflow. We should anticipate more entrants as the technology matures and ideas move from ideation into products.
From all I’ve observed and learned in the past year, I believe that blockchain technology has potential, but let’s agree we’re still in the R&D stage, and that the technology has not yet proven its industrial strength. Our legacy payment networks process millions of transactions accurately, securely, and cost effectively today; this level of processing has not been reached by any of these new entrants. If the technology is able to meet all the expectations it’s being promoted for - and that’s a high bar to meet as legacy systems already meet many of the industry’s expectations - it will have a long and interesting future. But I caution: it is not going to solve every business problem in the financial services industry. Right now blockchain is a technology solution looking for problems to fix. Let’s not be so enchanted by the technology that we lose sight and apply it where it’s not needed.
Knowing where blockchain will fit in the future will require open collaboration and more education for the banking industry. Legacy banks and fintech startups need to engage in open dialogue about this invention. This is a fundamental shift because the degree of openness and collaboration characteristic of start-ups is much different from the product development approach banks have traditionally undertaken; until now, it’s pretty much been closed networks and private relationships with clients. Blockchain promotes open and public relationships, a paradigm shift that requires a degree of debate and understanding from all stakeholders.
But blockchain technology is stirring things up with its focus on open networks, public data and security. It’s taking us to places we’ve never been. I hope that the end result will be about getting us to a new normal that drives a productive future. It’s going to take a lot of critical thinking and a lot of debate as to where this might be taking us. And who knows? We may find that blockchain will start leading us to places we would rather not go.
The opinions, findings, or perspectives expressed in this content are those of the author and do not reflect the official policy or position of The Bancorp, Inc., its affiliates, or its or their employees.