We are living through several concurrent financial revolutions, with the rise of crypto, Fintech, and Open Banking taking place simultaneously. These paradigm shifts are not happening in isolation, however, because visionary pioneers working at the various cutting edges of finance are now collaborating, sharing ideas and creating new synergies between sectors.
Helen Child, founder of Open Banking Excellence (OBE), shares her thoughts on whether cryptocurrency is the future of open banking.
Just a few short years ago, it seemed unlikely that crypto would enter the mainstream. But that’s exactly what’s happening today. Countries including China, the US and the UK are currently working on Central Bank Cryptocurrencies, which would be digital versions of the yuan, dollar and pound. Facebook recently launched a pilot of a crypto wallet called Novi and is also developing its own stablecoin (a cryptocurrency pegged to another asset) which will be called Diem. Notably, Mastercard is about to give banks and merchants on its network the ability to integrate crypto into their products, after releasing a survey that found that four in 10 people plan to use crypto in the next year.
Jennifer Lorentz, Vice President, Global Regulatory Counsel for Crypto, Blockchain and Digital Solutions at Mastercard, said: “Here at Mastercard we think about the future of payments and how consumers are looking for more choice about how, when and where they want to pay for things. We’re interested in looking at crypto to meet that demand for choice.
“We’re also seeing a growing intersection between the traditional financial world and the crypto world, particularly between banks and non-banks. Traditional banks are looking to offer more digital asset services and this is driving a lot of new activity that we at Mastercard believe will drive more interoperability because at the end of the day people, companies and governments need to be able to use different sources and mediums of money interchangeably and seamlessly.”
The Rise of Crypto
It’s an exciting time for finance, which is about to undergo a transition of historical proportions as incumbents join forces with trailblazers.
Today, more than 100 million people are estimated to be using cryptocurrencies – more than the number of internet users back in 1997 when the digital revolution began to take hold. Of course, we know what happened when the dotcom bubble burst in 2000 and there is every chance the immediate future of crypto will be tulip-shaped. But even if the bubble inflates and bursts, the changes wrought by this disruptive financial technology are likely to live on.
After all, the dotcom bubble didn’t wipe out the world wide web and survivors including Amazon and eBay emerged from the wreckage and went on to world domination.
Crypto has hit several important milestones recently which are comparable in importance, if not regulatory power, to open banking landmarks like the EU’s PSD2 (Payment Services Directive 2) and a 2016 ruling from the United Kingdom’s Competition and Markets Authority ordering banks to allow third-party access to their data.
Bitcoin hit an all-time high of almost £48,000 in October after Proshares launched the world’s first Bitcoin EFT, a development that was memorably described as “Wild West meets Wall Street”. The astonishing price rally was also driven by positive rumblings from Washington, which appears to be standing at the “crossroads” of introducing regulation. The fact that crypto is largely unregulated represents the main difference between the blockchain sector and open banking right now, but if and when this changes, incumbents are likely to get involved in a big big way. In 2021 alone, institutional investors have ploughed more than $17 billion into crypto as the total market capitalisation of all cryptocurrencies soared to $2.7 trillion.
Just imagine what will happen when the right rules are in place and true collaboration between crypto pioneers, fintech trailblazers and the traditional banking giants can begin. We’re standing on the edge of another revolution that will shake the financial world.
Yatin Vadhia, Product Leader at TrueLayer, said: “The Financial Conduct Authority has issued guidance around making sure investors are aware of what they’re investing in, which is particularly useful for younger demographics who may not have invested before. It’s important to make people aware of the risks, so I’m very glad to see the FCA taking a step in that direction.”
Partnering For Change
To inspire collaboration and the exchange of ideas, Open Banking Excellence (OBE) has launched a Crypto 101 series designed on YouTube featuring Amelie Arras, Marketing Director of the crypto wallet and payment platform Zumo, as well as other special guests.
Amelie said: “I am passionate about the transformative potential of crypto, which was founded on a big ambition: to decentralize finance and give people everywhere control of their money.
“There are strong synergies between crypto and Open Banking and there will be many exciting new ideas as both sectors continue to evolve, cooperate and cross-pollinate.”
At a recent OBE Campfire hosted by Exec Co-Chair of Global Digital Finance (GDF), Lawrence Wintermeyer, industry experts such as Jennifer Lorentz, from Mastercard, Yatin Vadhia, Product Leader at TrueLayer, Stefan Rausch, Open Banking & Payments SME at EPAM, and Gareth Connolly, Account Executive at Salesforce discussed key issues around crypto and open banking. The other guests were Austin Elwood, Payments Policy Manager at UK Finance, Dr Jane Thomason, Founder at Supernova Data, and Robert Courtneidge, a payments industry expert.
Gareth recently authored a blog for OBE summing up the state of crypto with these inspiring words: “Whilst it might seem futuristic and unimaginable to overhaul the current traditional banking system, perhaps in the not too distant future, the new era of fintechs will see innovation, with new currencies, in a new financial landscape.
“Cryptocurrency is analogous to discovering a new alphabet, enabling us to form new words, poems and stories. In this sphere, so much is still unwritten and rules undefined. So whilst the foundations are only just solidifying, the next chapter should be fascinating.”
Payments are one of the areas in which crypto can have a particularly positive effect, because it allows money to be sent across borders and potentially with lower fees than traditional payments and remittances systems. In fact, one of the major reasons why El Salvador became the first country to make Bitcoin legal tender is because it has a large diaspora working in the US and other countries. The payments they send back to El Salvador are worth an estimated $6 billion, accounting for roughly 23% of its gross domestic product. It’s been suggested that switching to crypto could save $400 billion a year in remittance fees.
Crypto could also offer significant benefits to other developing nations, by giving unbanked people access to a global economy.
Helen Child, Founder of Open Banking Excellence, added: “Both crypto and Open Banking are red-hot relevant, offering exciting new ways to power payments and other financial transactions. At Open Banking Excellence (OBE), we play a key role in the ecosystem by enabling global dialogue about Open Finance, but now the conversation is turning to crypto as everyone from incumbent banking giants to trailblazing Fintech innovators experiments with blockchain.
“These sectors are converging and we will continue to bring pioneers together to support the conversation and share it with our community. We’re expecting to see good things happen as pioneers work together on the future of finance and synergies between crypto, Open Banking and traditional banking continue to emerge.”
Echoing this call for collaboration, Stefan Rausch, Open Banking & Payments SME at EPAM, called on crypto
innovators to work with banks – and vice versa.
“I am an advocate of looking at the adoption of crypto as an open loop, not a closed loop,” he said. “Instead of separating the ‘old world’ from the ‘new world’, we should think about how to bridge those two systems.”