How much more will the internet change financial services?
By Artem Tymoshenko, CEO, Maxpay
The internet has fundamentally changed almost every industry.
Whether as the result of Google providing hyperefficient search results, online tracking facilitating supply chain management, or Apple digitizing the distribution of media and communication, we do things today in vastly different ways than we did 20 years ago.
One area that has lagged in innovation is financial services. Though money is inherently a conservative market, many predicted some time ago that providers would innovate quickly or be replaced.
This has proven not to be the case as banks and insurance companies are still in command of all five sectors of finance: lending; capital markets; insurance; asset management; and payments.
There are plenty of potential game changers in the works to take on the giants of the industry. These innovative products and startups may set the standard for a revolution in the financial industry in the same way that YouTube and Netflix set a new standard for the consumption of video content.
We have seen an attempt by key players to digitize some of front-end processes in the financial industry, such as onboarding, distribution, sales and underwriting, but we are just beginning to see the digitization of back office processes. The real change will happen when the industry begins to reevaluate the very concepts of money and assets.
Bitcoin, for example, changes the notion of what money is and how it is traded. Not it enables users not only to anonymously trade digital currency, but also to make micropayments efficiently without the risk that someone might artificially inflate or deflate the money supply.
While bitcoin itself is still viewed as a curiosity, its underlying blockchain technology is taking the financial world by storm.
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 securely stored in a way that is completely transparent to everyone who uses the platform.
Sweden has already started testing a system that would enable the country to completely digitize land titling. Real estate is an especially apt candidate for the process.
The current process of verifying land ownership, placing funds in escrow and hiring lawyers to confirm and reconfirm contract details, takes months to complete. Entering land titles into a blockchain and digitizing the contracts could shorten this process to a matter of hours and drastically reduce the cost, which now runs into thousands of dollars for a single land transfer.
The International Blockchain Real Estate Association, a California-based advocacy group, has been calling for an overhaul of the current archaic land titling system used by most of the world.
The IBREA mandate asserts that, "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 that is in desperate need of the transparency and liquidity the blockchain can provide.
Since 1971, the Nasdaq has tried to harness technology to increase liquidity of financial assets. As opposed to in-person auction trades used by the NYSE, all trades on the Nasdaq are electronic.
Now the exchange wants to take its game to the next level by entering the stocks into a blockchain. This would allow traders to move assets instantaneously and transparently from buyer to seller without involving an exchange house, all while maintaining the security of the transaction.
This type of fundamental shift in what stock is and how it changes hands could open the market further to individuals and democratize the governance of the companies that issue stock — for example, by allowing shareholders to vote digitally on key issues.
Intellectual property is another asset that could move to the blockchain. One company, Ascribe, allows creators to share their work knowing that their authorship claim is secured, and allows buyers to purchase that work knowing that they can collect and truly own it.
As these new technologies gain the confidence of consumers, the real revolution in the financial industry can begin to unfold.
The era of banks and governments controlling the value and exchange of assets is coming to a close. Just as the few major networks that used to control news and entertainment are being supplanted, the centralized banks that control the way we acquire and store assets are being subverted.
What will the future look like? I don't know, but I am sure that when we look back in 20 or 30 years from now, today's processes will seem as outdated and quaint as the idea of driving to Blockbuster to rent the movie of the week.