Sunday, 30th October, 2016
| The big guy vs everyone else
TL;DR It’s not always the small and nimble that win the race. In the financial sector, the big guys have significant advantages, especially if they move to adapt from within. Can the incumbents become the disruptors? (Read more in THE TAKEAWAY below.)
TOP 5 STORIES ON COINDESK So, Zcash launched. The new cryptocurrency promises totally anonymous transactions using a new cryptographic tool with the fantastic name of zk-SNARK (you don't really want to know what it stands for). This innovation allows the transaction data to be verified without being revealed or stored. Attracting interest.
Whoa. A controversial panel at Money2020 led to a standoff between those that think the existing system works but can be improved on, and those that think we should tear it down and start all over again. Here we have the “can” versus the “should”. Heated debate.
What was that sound? This week Chain dropped its “biggest release” yet, with the open-sourcing of the Chain Protocol. With an increasing number of blockchain tools becoming available, 2017 is looking more and more like the year when blockchain projects start to make a real impact. Read more.
A “soft” trade. Progress was made in the application of blockchain efficiencies to international trade. Australia’s Commonwealth Bank and Wells Fargo successfully completed a trial involving a shipment of cotton. The story.
Blockchain stocks. We knew this was coming, but now we have a date. Overstock will start trading some of its shares on the blockchain in December. It will be interesting to see how this rolls out, and the potential impact on other stock issuers. More info. More Blockchain News →
QUOTE OF THE WEEK "But cryptocurrencies are not only competitors. They represent different trade-offs between security, complexity, performance, cost and other factors, so each is likely to find its niche." - The Economist |
THE TAKEAWAY
International payments have been chugging along quite nicely for years, as long as you don’t count long delays, high costs and the occasional hack.
Then along comes the blockchain, promising almost instant transfer at virtually no cost and with greater security.
And the banking sector trembles.
Or does it? The potential for disruption is obvious. And yet, in this case, it probably won’t come from where we expect. When it comes to international payments, the disruption is more likely to come from the underlying system.
Founded by a consortium of banks in the 1970s, Swift coordinates cross-border payments between more than 11,000 financial institutions. Its detractors insist that the cumbersome system could use much more than an upgrade, and point out that the blockchain circumvents the need for banking relationships.
However, the fact that Swift was created as a collaboration between banks will make the new technology easier to implement around the world, bringing the benefits of network effects.
Furthermore, the member banks – the same banks that are being targeted by the potential competitors – own Swift. It’s unlikely that they will choose to sacrifice their own creation, especially if it means putting control of a large part of the international payments system in the hands of a single, for-profit entity, however decentralized its network.
As long as Swift is moving in the same direction of greater efficiency and lower cost, that is. Its upcoming new payments rail GPI is criticized by some as being a start in the wrong direction. But last month its CEO acknowledged the possibility that it could end up incorporating the blockchain. And its investment in startup accelerators and hackathons reveals a strong interest in transforming its culture.
Will its blockchain efforts be enough to stave off the disruptors? Can Swift overcome its traditional banking heritage and emerge as a blockchain leader? Will it need to resort to absorbing one (or more) pure blockchain businesses?
Stepping back, we can see that incumbents are increasingly trying to beat disruptors at their own game, in the financial sector and beyond. While Swift is one of the more obvious examples, stock exchanges, custodians, savings associations and credit card companies are following suit. Inspired by startup activity, they emulate, work with and sometimes take over potential threats. Profound sector changes are being implemented from within.
Does this mean that we are moving into an era in which disruption becomes less, well, disruptive? That the new technologies favour collaboration over competition? That the rapid spread of information is changing the stereotypical culture of the incumbents from resistance to awareness?
If so, we could finally see the welcome retirement of an overused word. Perhaps it will be replaced by a more solidly hopeful one, less driven by hype: evolution.
– N
More background:
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OTHERS ARE TALKING ABOUT...
In the press this week, IEEE Spectrum published a detailed account of the runup to the much-anticipated Zcash launch. The Economist started out talking about Zcash but ended up with musings about the possibility of an Übercoin. And TechCrunch provided an entertaining snapshot of Zcash and other developments in the cryptocurrency sector.
The FT linked the rise in the bitcoin price to capital outflows from China, and also had a good overview of some of the risks of the blockchain. Bloomberg carried a riveting in-depth report of the blockchain-based cotton trade that we reported on this week. And Finextra took a totally different view from us (see above) on Swift’s interest in evolving.
UPCOMING EVENTS
WHAT WE’VE BEEN UP TO So, Money2020 was totally intense. With more attendees than ever, it could well represent a turning point in fintech’s road to mainstream. High-profile keynote speakers, product launches, panels and great snacks… Pete Rizzo was there to bring you the insight.
(And hey, by the way, there’s only 35 tickets for Consensus 2017 left at super-discounted price of $899. Just sayin’.)
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