December 7, 2015
This article is based on a podcast recently recorded by LTP. We invited mobile payments guru Nick Holland to discuss what to expect in 2016 along with our Co-founder Amit Goel. LTP CEO Aditya Khurjekar moderated the special session, the first of a multi-part series, focused on predicting what we can expect in FinTech in 2016.
Here is an abstract of the discussion. Also, listen to the LTP podcast below:
Aditya Khurjekar: What should people expect in the world of blockchain in 2016?
Nick Holland: 2015 is about to go by and we have seen a massive amount of interest in the blockchain space. There are lots of investments that are going on from big major financial institutions. I think that it is partly for innovation reasons because banks clearly want to be part of this and also for intermediation reasons. They don’t want to be cut out of whatever happens next. I see blockchain as being potentially as disruptive as Voice over IP. We have seen banks like UBS who have set up a blockchain lab and Goldman Sachs who have invested in Circle, which is a blockchain company. There is an interesting mix of companies that are investing. It is interesting how everything can be made disruptive by this centralized ledger.
Amit Goel: I think about blockchain as software for trust if I was to define it in one line. I think that in the real world, the trust problem gets avoided because we use cash and cash is relatively quite difficult to counterfeit. But when we come to the digital space, there is lots of counterfeiting that can happen. So this is the first time that we have the technology and the concept of a distributed ledger which can allow us to build trust without having to have any centralized entities. I was pretty impressed by Santander. They made a very bold statement earlier this year saying that blockchain technology could reduce bank infrastructure costs by 15-20 billion a year.
I definitely think that the work has already started. The good part is that people are learning from what happened in the payments space and how important it is to build the infrastructure and the protocol as well, apart from the application layer. What I am seeing in blockchain is that in 2016, you will see a lot of companies coming up with these sandboxes, network nodes of production deployment, protocol work and then there would be a bunch of companies working on the application side bringing decentralized financial exchanges, municipal bonds, smart contracts, etc. What I really like about this is that the whole vertical stack is being targeted with blockchain.
AK: If I were to give you three choices, which of these would be the first to have a sufficiently robust blockchain-based product launched in the mainstream?
1. A remittance service from an incumbent remittance company using blockchain
2. A financial service from an incumbent financial institution using blockchain
3. A non-financial service like rights management, settlement using blockchain
NH: I think that the companies that have the writing on the wall in terms of how blockchain and virtual currencies can be disruptive are the remittance companies such as Western Union, MoneyGram, etc. Certainly, we have already seen some of the activities like Western Union working with Ripple. I think they will be quickly moving to provide blockchain solutions because they are front and center of being disrupted.
AG: In my opinion, one of the segments where we would be seeing a lot of traction in 2016, would be the equity crowdfunding space, as to how to let the trading of assets happen without intermediaries. This is something that NASDAQ is also working on. Companies like Chroma.fund and others are really making progress in those decentralized financial exchanges, especially for the private market. And I would also like to add that among the non-financial services that Aditya mentioned, smart contracts from the statistical point of view would be doing great in 2016. I have contacted a bunch of startups that are pretty ahead in the game with smart contracts.
AK: In 2016, will we have a consumer product that allows you to send money from one bank to another bank in real time or almost real time?
AG: I think that in 2016, it is very much possible if you were to believe clearXchange and their real-time cross bank payments that are going to come up.
NH: I think it’s not something that’s going to roll out anytime soon. But, yes, I can see the likes of clearXchange doing this very quickly.
AK: What is another topic or prediction for 2016 that you are looking out for?
NH: In 2016, we might see a lot more activity around beacons enabling notifications of the customer entering the store, and that effectively being the start of the checkout process. I think we can see some activity there with tons of money going into this space. We have got Google in this space; we have got PayPal in this space. These companies are desperate to extract information like: who you are, where you are, when you arrived and ultimately what you are buying as a result of being in that place. There is another dynamic here that banks potentially have earned—the goldmine of data of what consumers are actually purchasing. The information which can be derived from consumer behavior can be revolutionary.
AG: I think the data that banks have and how they are going to use it is something that is going to be great in 2016. I’ve talked to some people at banks; Citi has been doing something under that. These banks have done some amazing work and the best part is that today, they are not only trying to look at the data that banks have but are also trying to mash it up with third-party data. You can look at Amazon and the views that a particular merchant is getting and then use those data points to decide what kind of a risk profile a merchant can have and what kind of loan you can get. I think data is going to be a very strong play both in terms of the banks side and payments side as well.
AK: Do you think in 2016, we will have a bank that will provide incentives/gifts in exchange of data collection policies. Do you see any bank going that far?
NH: As Winston Churchill said, everything has a price. There can be a direct trade-off where banks can provide gifts and incentives like iPads in return for data point information.
AG: I think with regard to the loans, it might make a lot of sense if the bank says, You provide me 20 more data points and I’ll give you a reduction of 50 basis points on your interest on the loan.
For the full discussion, please listen to the podcast below.