The Internet has fundamentally changed almost every industry. Whether it was Google providing hyper-efficient search results, online tracking facilitating supply-chain management, or Apple digitizing the distribution of media and communication, there are very few things that we do the same today as we did them 20 years ago.
One area that has lagged in innovation is the financial services industry. While money is inherently a conservative market, many predicted that financial companies would innovate quickly or be replaced. This has proven not to be the case as banks and insurance companies still command all five sectors of finance—lending, capital markets, insurance, asset management and payments.
Of course, a plethora of potential game-changers could indeed take on the giants of the industry. These innovative products and startups may set the standard for the revolution in the financial industry in the same way that YouTube and Netflix have changed the way we consume video content.
We have seen an attempt by key players to digitize some of the front-end processes of the financial industry, such as on-boarding, distribution, sales and underwriting, but we are just beginning to see the digitization of back-office processes. The real change will happen when payments industry players begin to reevaluate the very concept of money and assets themselves.
Bitcoin, for example, changes the very idea of what money is and how it’s traded. Not only does it enable people to anonymously trade digital currency, but it also enables them to efficiently make micropayments without the risk that someone could artificially inflate or deflate the money supply. While bitcoins themselves are still viewed as a curiosity, the underlying technology, the blockchain, is taking the financial world by storm.
Path to Transparency
Perhaps the most enticing aspect of the blockchain is that it provides a secure path to transparency. Anything that can be expressed digitally can be stored securely and in a way that’s completely transparent to everyone who uses the platform. Sweden already has started testing a system that would allow the country to completely digitize their land titles process. Real estate is an especially apt candidate for the process. (Editor’s note: Microsoft and Bank of America recently teamed up to further develop blockchain technology for financial services, underscoring the apparent promise of the technology.)
Not only could the titles themselves be digitized and defined within the blockchain, but the current process of verifying land ownership, placing necessary funds in escrow accounts, and hiring lawyers to confirm and reconfirm contract details takes months to complete. By entering the land titles into a blockchain and digitizing the contracts themselves, the process could be shorted to a matter of hours, rather than the current system that can take months, and cost thousands of dollars to complete a single land transfer.
The advocacy group International Blockchain Real Estate Association as a large LinkedIn community and has been calling for an overhaul of the currently archaic system used throughout most of the world. According to their mandate, “Performing payment, escrow and title on the blockchain will take real estate from the 17th to the 21st century. By using Bitcoin, we can reduce costs, stamp out fraud, speed up transactions, democratize investing, increase financial privacy, internationalize markets, reemphasize equity, and make real estate a liquid asset.”
Real estate is not the only service in desperate need of the transparency and liquidity that the blockchain can provide. Since 1971, the NASDAQ has tried to harness technology to increase liquidity of financial assets. Compared to in-person auction trades that happen in the NYSE, NASDAQ trades are all electronic. Now the exchange wants to take it to the next level and put the stocks themselves onto a blockchain. This would enable traders to instantaneously and transparently move assets directly from buyer to seller without involving an exchange house, while maintaining the security of the transaction. This fundamental shift in what stock is and how it moves from person to person could not only open up the market to more individuals, but also democratize the governance of the companies that they are issued from, for example, by allowing shareholders to regularly vote digitally on key issues.
As these new technologies gain consumer confidence the real revolution in the financial industry will begin to unfold. The era when banks and governments control the value and exchange of assets is coming to a close. In the same way that a few major networks that used to control the news and entertainment that we consumed are being replaced, the centralized banks that control the way we acquire and store assets are being subverted.
Artem Tymoshenko is CEO of Maxpay, a payment services firm. He has held that position for eight years and has experience in international acquiring, payment systems, processing systems, e-money, risk management, network and system security, digital self-service and e-billing. He can be reached via Maxpay.com.
In Viewpoints, payments professionals share their perspectives on the industry. Paybefore presents many points of view to offer readers new insights and information. The opinions expressed in Viewpoints are not necessarily those of Paybefore.