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Why do I need a bank account to hold, manage or spend money? I really shouldn’t have to pay fees and service charges, especially since my money — everyone’s money — is the gas in the bank’s lending engine. But if I don’t have a bank account, how do I pay my bills? I often use Apple Pay, Venmo or credit cards more than I use cash. Electronic money is how I pay for things, so why can’t I hold that in my phone or manage it through my Facebook account? A direct deposit and payment option through LinkedIn would also be nice since I spend a good amount of time on that platform… then maybe something similar for Twitter.
So where do we go from here? What’s the future of money? It’s time to start getting serious about digital currencies — central bank digital currencies, and stable coins (commercial, bank-issued digital currencies) to start allowing my money to be managed and moved the way I want.
Banks are coming up against a wall of transformation
Every day banks lose market share to Fintech. It’s death by a thousand cuts. Banks who aren’t already planning for the impact of transformational innovation have a very tough road ahead. And I believe that it’s only going to grow exponentially more competitive as companies with substantial financial resources continue to invade and disrupt the profitable business of payments. Next, cryptocurrencies with more stable characteristics are beginning to emerge and establish themselves as viable alternatives to fiat currency — money that is declared legal tender by a government.
Cryptocurrencies have moved the conversation from the notion of e-money and how it can impact global commerce to instead showing that new currencies can be created and managed as a store of value, eliminating intermediaries in the process; this is a radical change for the baking industry. Lastly, the EU Payment Services Directive (PSD2) is mandating the creation of bank APIs to allow non-bank entities such as online retailers, to initiate and complete payment transfers without the need for legacy payment networks or proprietary bank systems. In this way, regulation in the EU is leading the way for payments innovation and precipitating the erosion of payment market share away from banks in favor of innovative firms and Fintechs.
National digital currencies can bring positive change for banks
In Sweden, where the incumbent payment processors control the majority of the market, Riksbank, the world’s oldest central bank announced the intent to create a national digital currency to promote competition and further enhance the national payments system.
National digital currencies could offer operational efficiencies to banks, as well as improved user experience, along with new market opportunities through such innovations as stable coins enabling banks to issue credit and inject liquidity into new blockchain-based transactional networks, creating new revenue streams for themselves in the process. This ongoing shift could potentially reshape the competitive payments landscape.
Blockchain and national currencies might be the solution for banks
One of the first products to be brought to market in that portfolio is World Wire, our new blockchain-based real time cross-border payment network. With IBM’s leadership in blockchain, which I believe provides the tipping point for transformational innovation in cross-border payments, IBM Blockchain is taking strategic steps to develop a solutions portfolio for financial services.
Join Jesse Lund in October at the Sibos conference in Sydney where he will join the panel, “National digital currencies: Will they cash in?” Learn more about World Wire and how the payment and banking landscape is on the precipice of a major financial transformation.