"A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution" - Satoshi Nakamoto (Bitcoin whitepaper)
To the people who have even vaguely researched the emergence of Bitcoin, blockchains and crypto-currencies, these words are almost evangelical. Each crypto missionary has signed allegiance to this opening statement as it has become a widespread mantra to overthrow the banking institution. A vision that many in the industry hold very dear to their hearts.
However at what cost would it be, for the globe to give up the safety net of the banking network? Are the majority of the latest Bitcoin entrants cognisant of what they are gaining by being part of the Bitcoin community and what they are giving up by leaving the banking community?
I don't think so...but at least now we have a choice.
On January the 3rd 2009, when the Bitcoin genesis block was mined, we finally had a choice as to how we would be able to transact that wasn't predetermined by a regulating party. Nine years later and after the undivided commitment by the Bitcoin pioneers to build Bitcoin into one of the greatest revolutions we have ever seen, we are witnessing the first true globalisation of an asset class that has no borders and does not recognise social inequalities.
Bitcoin promises freedom from the cuffs of governments, banks and trusted payment providers deciding how we can and may spend our wealth. It promises the freedom of cash while taking away the ability of central banks to print more at will and under economic pressures. We finally have the option to have full control of our wealth.
But this comes at a cost....
You can't truly call yourself a ‘cryptonite’ without either experiencing or being very close to experiencing the deathly feeling of losing your money. Not by price fluctuation and panic selling, but by human error and complex technologies. The industry has become a minefield of scams, confusion and misunderstanding of various nuances across the different technologies and while most noobs are just chasing the latest promise of lambos, they are sitting ducks when it comes to navigating this space.
In cryptoland, if you send your Bitcoin to the wrong address, partake in a fork without replay protection, have your private keys stolen through hackers, send your coins without a required tag or payment ID or being part of an exchange hack that costs you all of your wealth, there is no big daddy bank to turn to for help. No card scheme to claim a charge back against or no legal authority from which to lay a claim. You are on your own. And the cold sweat running down your spine when you think you have just lost all of your crypto due to simple human error, will quickly make you feel as exposed as a carcass in the desert, circled by vultures.
So don't be fooled... the great benefits that Bitcoin and Cryptos offer definitely come at a cost. And that cost is ignorance. There is a reason why all the Crypto greats advise you to do your research and only invest what you can afford to lose.
But if we are only confident to invest what we can afford to lose, we aren't truly embracing the benefits of this space.
So what other option do we have...?
What most people don't know, is that the banks are currently trying to disrupt themselves and the charge is being led by the European Union.
PSD2 is the second iteration of PSD (Payment Services Directive) that was first released in 2007, focusing on streamlining the payments landscape. In 2013 countries of the European Union designed the 2nd Payment Services Directive, which is largely focused on making banking less of a monopoly and more transparent by giving access to core banking services and data through API's. The European banks had until the 13th of January 2018 to implement PSD2 and this is why this topic is now becoming very relevant.
PSD2 opens up the bank's payment infrastructure so that certified Fintechs can access, innovate and advance the payments landscape while building on the security and trust that banks have, while being guided by strict policies and governance enforced by the banks. Time will tell whether this will hinder the process and encourage further development of disruptive technologies or bring innovation closer to the banks and build on their infrastructure.
The industry will see the emergence of two specific competitors in the form of a Payment Initiating Service Provider (PISP) and Account Information Service Provider (AISP), which will start offering innovative products and services of which the banks might not necessarily have thought.
The other key changes introduced by PSD2 can be grouped into four main but overlapping themes: market efficiency and integration; consumer protection; competition and choice; and security. Some more specific changes include:
Extension of scope to all currencies and one-leg payment transactions
Changes to the scope of the exclusions
Passporting, authorisation rules and supervision of payment institutions
New providers and new payment services
Operational and security risk management and incident reporting
Requirements for strong customer authentication and secure communication (Source: www.paymentsuk.org.uk)
What does this really mean?
When my co-founders and I set out to solve a very specific problem for petrochemical companies, which was to find a way to curb crippling credit card fees that were introduced during the 2010 Soccer World Cup when one could buy fuel on a credit card for the first time, we climbed down two rabbit holes. We have yet to find the end of either of them.
Open Banking and Blockchains have two polarised starting points, yet as you burrow down their maze-like tunnels they intertwine and cross more than people may think.
To be honest, I really hope there is no end... As these two journey's have opened us up to a world of possibilities.
By having Open Banking emerging alongside blockchain and crypto-currencies, users are now able to choose between two worlds that are proving to be very complimentary. Fintechs are now able to innovate by leaning on technologies that have very distinct, associated benefits and costs.
This will be the start of true freedom of trade and globalisation of commerce. The trade-off between the two worlds does not have to be a zero-sum game and could be an opportunity for choice that now remains entirely under the control of each individual.
When we first developed Waxed Mobile, our vision was to offer alternate payment options to both consumer and merchant in order for them to take control of their medium of exchange, cost of exchange and data related to that exchange.
The gateways between the two worlds are simultaneously openning and it is game-on for Fintechs to start designing the holy grail of the middle road.
We now have the ability to use available technologies to give control and choice back to our customers.
Over the coming weeks I will dive back down the respective rabbit-holes and salvage nuggets of information that can benefit you in understanding, navigating and making confident choices between the tradeoffs of these two worlds.
Stay tuned.... !!!
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