Traditional FIs must lose in real-time payments battle, Woo Regulators. Amazon has been shipping books for over a quarter century. The dot-com boom burst, then came Web 2.0, the Semantic Web. And an eCommerce surge that transformed practically every facet of our lives. Anyone can buy almost anything online. And have it delivered to our house in a few days.
Funny event happened on the path to the future. At its core, the world’s payment system hasn’t changed much. Buying boots on llbean.com isn’t that different from contacting the pleasant guys in Freeport. Maine, who used to handle all of L.L. Bean’s orders and reading your credit card number. Said i2c’s Jim McCarthy.
“There was no re-engineering or thinking put into what is a better payment mechanism. For the internet,” McCarthy told PYMNTS’ Karen Webster recently. The interface for mail-order or telephone processes was improved. They all became salespeople and data entry workers.”
That doesn’t mean certain companies did it better and were unambiguous winners.
“Amazon and PayPal redesigned internet payment,” McCarthy added. “But not on a large scale.”
In spite of this, McCarthy claims that the Internet has “flattened” the world,. Allowing for new ways to move money that are “more of a push than a pull.” Such as peer-to-peer, business-to-business, business-to-consumer. And consumer-to-government.
Enter blockchain, a technology that allows for the creation of cryptocurrencies and other tokens.
Payments between businesses, correspondent banking. And other areas of friction are being flattened by cryptocurrencies.
Winning “What’s Next”
This is not to imply that we have created a better mousetrap – at least not yet. McCarthy believes that cryptocurrency holds a piece of the solution. But that the rest of the system that underpins the movement of money. Around the world has a long way to go before it can catch up.
For example, banks are beginning to iron out the wrinkles in Real-Time Payments (RTPs). Which have the potential to overcome the problem of two-sided networks.
“However, they’re a little late to the party,” he lamented. “These requirements have always existed, but no one has ever actually put them together.”
In spite of the fact that institutions capable of doing so already exist. Such as clearinghouses and the global financial messaging system SWIFT. “No one was taking it on the chin to say, ‘We are going to go out and rewire this and make it extremely quick,'” he continued. “Even the Federal Reserve showed up late to the celebration.”
As a result, they’re following in the footsteps of startups such as Venmo and Square’s Cash App.However, McCarthy cautioned that there are still a slew of interoperability difficulties. To be resolved with regard to the Clearing House’s RTP,. Adding that many real-time rails aren’t connected internationally and that. “There are still a slew of interoperability issues to be resolved.”
He went on to say that token-based crypto goods might be the answer. McCarthy informed Webster that, on the other hand, developing a two-sided network solution. Is about more than just having the finest product on the market. The winning solution is the one that achieves critical mass. Also known as the tipping point — the earliest in the process of Traditional FIs.
Regulation and Direction
How we get there and what occurs afterwards is heavily regulated. That’s always the wild card with bitcoin or anything new in payments, he said.
McCarthy spoke from experience. When he was at Visa, he recalls analysts. Asking what the company’s biggest threat was, expecting him. To respond Amazon or PayPal.
“Crypto is going to be disrupted by rule-makers and regulators. When people come in with a heavy hand,” McCarthy warned.
According to McCarthy, they will strive to manage something that is fundamentally uncontrollable — crypto.
It’s a distributed ledger, so you can go after the entry and exit points. “No one owns that.”
McCarthy forecasts innovation and competition, followed by regulation, more innovation and competition.
“It’ll come down to a few winners, like most everything in this space,” he said.
When it comes to payments, “it takes about ten years to truly take root. And maybe another ten to go mainstream,” McCarthy says.
According to McCarthy, Bitcoin was launched in 2009 and is already in its second decade.
“Give it ten years to mainstream.” “We’ll see,” he said in Traditional FIs.