A true disruption of banking will only happen when startups find a way to blow up banking pricing models that used to sustain their business model. This is likely to come in a form of unbundling from the very core, such as deposit accounts. The reason it hasn’t happened yet is because banks are doing it better. There is an Achilles weakness, however, the lack of real-time transaction processing capability. Cracking that could provide a very real and serious edge over banking incumbents. Copying model app design is easy. Offering P2P loans is easy. Changing your core banking system is not. This would, indeed, prove that banking is necessary but banks are not.
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Road to (perdition) unbundling
By Pascal Bouvier
We know of two evident truths since the internet graced us with its presence. First, intermediators in any given industry will be disrupted as new business models emerge and effectively unbundle old paradigms. Second, this unbundling has not happened yet in the financial services. The question we are all working toward answering and in the process elevate to a third truth or disprove altogether is: will a great unbundling/rebundling occur in financial services? Suffice it to say, that, at a high level, new business models will disrupt old ones by unbundling their offering, rebundling new features/functionality and leverage at scale by aggregate attention as a result of said unbundling/rebundling. It is inevitable that credit intermediation will be upended as a result of this shift. How money is created as well as how capital requirements are engineered in the aggregate will have to be revisited should this model take hold at scale.
Arguing with a banker
By Chris Skinner
We are on the cusp of radical change. Some banks are leading this change, while some banks have no idea what change is coming. Bank is there as a trusted store of value. The lending part is now no longer important, as that can be done through alternative media such as peer-to-peer lenders. The bank’s risk management function is being eaten by software. This means that credit analytics, transparency and management of risk, and the democratisation of finance, is becoming a key change factor as people connect directly through marketplaces and platforms. Banking isn’t the end, but the means to the end. The end is what we’re buying and selling. A bank provides a method to enable that to happen, but software, platforms and marketplaces can just as easily provide that method in a far cheaper, faster and lower risk form.
What the father of venture capital can teach us about blockchain
By William Mougayar
Today, the industry is begging for a rewrite and a reengineering of the financial regulatory structures of yesteryear, giving hope to the current array of activities that have developed around cryptocurrencies. If that sounds far-fetched, remember that stocks were once considered a new asset class. The current asset classes include stocks, bonds and cash as ‘traditional assets’. Alternative assets include commodities, REITs, collectibles, insurance products, derivatives, foreign currency, venture capital, private equity and distressed securities. It is also worthy to note that the alternative asset classes have varying degrees of compliance requirements: from being regulated to non-regulated. Should regulators stop scratching their heads and treat cryptocurrencies simply as a new alternative asset class, we’ll be done with the debate. Hopefully, crypto will not take 20 years before the investment community buys into that concept wholeheartedly. These groups should note, it has already seen big successes. Bitcoin, ethereum and many other crypto projects have generated financial returns for their early investors, while creating a new economy – the blockchain economy. Just as Georges Doriot was credited for seeing that capital needed to get ‘creative’ to birth venture capital, we need to be creative today, in order to birth ‘crypto capital’. The difference now is we have a roadmap to replicate.
Bullion on the blockchain: a new gold standard?
By Noelle Acheson
It’s hard to believe that the price of gold was fixed twice a day via conference call as recently as two years ago. In 2015, the London gold market (the largest in the world) switched to an electronic pricing system, broadening participation and, in theory, ending decades of opacity, inefficiency and occasional manipulation. However, the price is still fixed only twice a day and most trading of physical bullion still occurs on OTC markets, perpetuating the lack of transparency and cumbersome reconciliation. This partially explains the recent flurry of activity in gold trading technology. This past week alone, both Euroclear and the Royal Mint announced progress in testing blockchain-based gold trading. IEX also has trials under way, and the Canadian Royal Mint already allows the public to buy and sell bullion on a blockchain platform. A more liquid and verifiable market for physical gold could create greater trust in ‘digitized gold’ by lowering skepticism about price fixing and removing doubts about the authenticity of the underlying asset. Increased demand and a greater choice of vehicle is likely to further boost liquidity, which in turn would increase circulation. This would enhance gold’s functionality as collateral or even as a means of exchange. The greater the ‘usefulness’, the greater the value.
Also published on Medium.