Amongst the many announcements, posturing and general disruption that is going on in the payments arena, there seem to be two trends that are happening in parallel. The first is that payments are engaging social media. The second is that the technology behind Bitcoin is getting noticed.
The blockchain approach, which underpins the veracity of transactions carried out with Bitcoins, is now of great interest to central banks. ‘In a discussion paper in February, the Bank of England said digital currencies showed “considerable promise” and that it was possible to transfer value securely without a trusted third party. The bank also raised the question of whether central banks should themselves issue digital currencies.
‘ The government also released a report from its Office for Science on the future of FinTech more broadly. “Digital currencies such as bitcoin have the potential to replace traditional currency and, by extension, the need for central banking and regulatory systems,” the paper said. Exchanges are opening and the mood has gone, quickly, from believing crypto-currencies to be the ‘Wild West’ to them being ‘the way forward.’ Just a day or so ago, the New York Stock Exchange announced it will create a bitcoin index, further illustrating the sudden change of heart.
Meanwhile, the number of ways that people can transfer money to each other and to companies is burgeoning. In India, for example, where there are 950 million mobile subscriptions, Axis Bank has launched a service that allows customers to transfer money using Facebook, Twitter, WhatsApp, email or phone number. Content and top ups can also be transferred.
Even though the initial take up of these social money services will be in regions with a high penetration of mobile phones and a low penetration of bank accounts, it is hard not to wonder about the potential. Customers want simplicity and if that simplicity is best provided by the ability to pay things or transfer money to others via Facebook – where most people spend much of their time – then why not in the ‘developed’ world.
What is the similarity?
If you consider the way that Bitcoin authenticates the transactions, essentially with clever software (driven by clever people) keeping an ‘open ledger’ and being rewarded for doing the sums, then it is not outside the realms of possibility that the social media giants – Facebook, Google, and Twitter – could invent their own digital currencies, using the Bitcoin model, the blockchain.
Whether that (or a variation of it) would lead to chaos and the end of the traditional banking system as we know it, or great innovation and the end of the traditional banking system as we know it, remains to be seen.
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