Money has remained the primary medium of exchange allowing us to monetize goods and services in to a common denomination. So in other words, currency has been the great leveler. It has allowed us to ascribe a value for all our manufacturing output, human services, natural resources, industry and life itself.

As we progress to a highly intermediated and disruptive financial services industry, at some point in the not so distant future, currency across nations would lose the nationalist appeal and get homogenized. It would bring its own challenge to calibrate growth levels of different economies, contain inflation, decision to print currency and so many other exciting economic variables. We can learn from the experiences of the EURO, not that it has been an ideal currency but at least it has been a largely successful attempt. If the world uses one currency then foreign exchange risk would be replaced by a set of more manageable and not so volatile and manipulative risks. This could actually turn out to be a handsome reward for nations, who can contain inflation, restrict population growth, limit climate violation, restrain subsidies, maintain fiscal discipline and introduce social harmony by progressive taxation and limiting disparity in distribution of wealth that would enable them to offer competitive pricing for goods and services.

Currency has new competition in cryptocurrency and if today we deride the principles behind their working, tomorrow we would worship them. Are not our equity, foreign exchange and derivative markets beset with our wagering instinct. We speculate with gusto in the name of containing risks and have invented a variety of risks and to contain them have invented an equally fascinating range of products. The value of the derivative industry is many times larger than the global economy; naturally it cannot be backed by real assets as we don’t produce those many assets so why can we not have a new regime of currency not backed by any real assets! It’s all possible as the nature of disruption is to create a new normal. To create what doesn’t exist and then to sustain it!

Similarly the payments industry is witnessing a new kind of disruption as non-financial services entities are introducing technologies that make them intermediaries in the payments space. They cover the entire value chain of money transfers and merchant payments largely through the use of phone/mobile wallets and online wallets. Today we have innumerable examples of how telecom players, mobile manufacturers, online shopping giants and their ilk are replacing traditional payment methods. And all of these interesting developments are not merely happening in the so called advanced economies but right across all economies from Asia to Africa and from Latin America to Eastern Europe.

Some of the most eye dropping innovations have happened in some of the poorest economies. The digitization of currency has come with intermediaries, accompanied by a massive technology upheaval that has just begun impacting the financial services industry. It has begun with payments, but will slowly spread its entrails in to every sphere of consumer and corporate banking. The financial intermediation has benefited billions of consumers and merchants as many of them earlier could not participate in the banking fraternity. The lethargy of banks to innovate and reach out to consumers and merchants has led to technology players unleashing the rebellious wave of unmatched convenience with low cost alternatives.

The payment intermediaries are akin to the new French revolution that promises Liberte, Egalite, Fraternite (liberty, equality, fraternity) to all participants. In financial parlance liberty stands for the freedom to choose alternative payment platforms, equality is the ability for people from all strata of society to access the platform and fraternity is to create an ecosystem of consumers and merchants who thrive in the usage of the payment platform.

The lofty ideals of the French revolution were soon forgotten when the French became colonists as they kept the subjects of their colonies under a repressive regime. One sincerely hopes that once these intermediaries become behemoths in their own right after displacing banks, they wouldn’t turn oppressors, like the existing banking system that treats their customers with excessive charges, high lending rates, low savings rates and the not so credit friendly policies for the not so privileged sections of our society. The conundrum of charging higher interest rates to low income earning segments/merchants has been the harbinger of the banking system, all in the name of risk and return. There couldn’t be a more unequal, discriminatory and bourgeois method. Banking hasn’t changed much from the days when the messiah Christ drove away the money lenders form the temple of Solomon. These money lenders and dispensers of credit still occupy the highest offices in the corporate world, whilst the proletariat awaits their Fintech messiahs to unseat and banish them in the wilderness of impoverishment.

Now coming to the question of displacing banks, is that viable or even remotely possible or do we foresee a future where banks would not remain as we see them today. It is for certain that the near future will witness a series of epoch making events that would distance banks form consumers and merchants increasing their dependency on intermediaries.
Most payment intermediaries today do not possess a banking license and so need banks in the background to maintain their accounts where money or credit is stored. So what do they rely upon to garner customer confidence; a dynamic combination of functionality (ease/experience of usage) and trust (security and dependability)! Cyber security remains the biggest concern as we get more and more technologically oriented and dependent on Artificial Intelligence. Every application has to be robust else hackers would compromise consumers and merchants alike. Hackers operating on the dark web are soon becoming the new terrorists, exploiting security breaches and scooting away with stored value credits.

Functionality and Trust will determine the future of payment intermediaries, it will distill the chaff from the wheat and many unworthy aspirants will fall off in the journey. One can visualize this journey in multiple stages. The first stage is already in witness as more consumers and merchants enroll themselves in the ecosystem created by the payment intermediaries, as digitization of currency gains ground. This is the stage of accessibility and ease; applications are populated by basic functionality to facilitate recurring payments. From Bangladesh to Kenya, and from China to the United States, we have numerous examples of payment intermediaries that have become the new messiahs. It would be futile to name them. A casual hunt on any search engine would list numerous names. As they slowly and surely gain the confidence of their consumers who become loyal users, they would graduate in to providing value added services akin to what a bank account offers today. Globally, these are providers of such services like Revolut, N26 and Nickel. Some with or without a banking license and those without a license will have a bank supporting them. However, the advent of mobile device manufactures, telecom providers and application support providers in the realm of payments is going to be massively disrupting for banks in the future. Aided by the astounding sale of mobile devices, a shift in our habits and the commanding penetration of internet connectivity, these behemoths are eyeing the financial services sector with gluttony.

The launch of Samsung Pay, Apple Pay, Android Pay and the numerous wallets by telecom providers and online shopping colossus’s is threatening the banking system similar to how the barbarians led by the Germanic tribes and Visigoths threatened the Roman Empire. Rome eventually fell, it remains to be seen how long would our financial system hold on to these rampaging players.

It is a long way yet as these wallets are too simplistic when it comes to functionality and cannot match the agility of the mobile banking applications of banks. But we are on the cusp of change and a rebellion is brewing. The advent of artificial intelligence combined with the speed of implementation wouldn’t take time for these players to integrate banking services and functionality in their wallet applications. I see them evolving as the Ubers of banking, where they would connect with multiple banks through APIs and route transactional traffic to these banks through their wallets. The wallets would provide high level of functionality matching to what banks currently provide their customers. Customers would rather chose to log in to these wallets which would have integrated with multiple banks thereby offering customers a single sign on access to their multiple banks accounts within or outside the country to carry out their financial transactions. This comes with its security nightmares but it can be overcome. But as a whole the concept is thought provoking!

Customer allegiance is to the mobile phone they use and so they would rather prefer to use the wallet which they see and experience consistently more than their banks accounts. Skeptics may argue that although wallets have been in existence for long consumers have still not started excluding usage of physical cards so what I state above is far-fetched and imaginary romanticism. I would rather link this to the philosophy of existentialism propounded by the likes of Jean-Paul Sartre and Friedrich Nietzsche to name a few. Just as each individual is uniquely responsible for providing meaning to life, living it passionately and sincerely, so also the technology market players will evolve the wallet to its next many levels displace what we have today from a standpoint of consistent evolution. Consumers will follow suit and habits will change.

Wallets and fintech applications started as stored value credit to support recurring and regular payment transactions. New customer acquisition through IBAN and then inching on to satiating credit demands of customers. With easy availability of credit scores, KYC led by biometrics, access to national IDs and online assessment, instant gratification for credit would become the norm. Wallets would pre assess, obtain bank credit confirmation and pass on multiple options for customers to choose from, thereby mitigating the need for customers to go hunting for credit. For banks there is a huge reduction in acquisition cost as costly sales resources get replaced by online sourcing.

All loan details and transactional data would be enabled and made available from these wallets. Then comes the sale of insurance and investment products, savings plans etc. With individuals accessing emails, social media and website for their day to day living through mobiles, mobile manufacturers have access to all these through their application. This opens up a world of pre-determined actions, one would literally be able to influence consumers and prompt them for engagements. A receipt of a bill from your utility provider would automatically generate a payment request or in future it would simply notify that payment has been made without any manual intervention. Every conceivable predictive behavior can be understood and executed with finesse. Banks may eventually decide not to invest in their own applications rather focus on instant disbursal and product enhancements etc. There is an endless possibility of this intermediation that has become possible on account of the mobile revolution. Much of this is already happening through multiple applications, it just needs to be integrated on to a single platform.

And it doesn’t end here. With the experience garnered by these players and shifting regulations, there is a possibility that some of mobile device manufactures, telecom providers and application support providers in the realm of payments might apply for a banking license, ultimately becoming banks themselves leading to the displacement of the existing financial services providers.

Maybe something more disruptive may happen, we cannot predict technological changes and the rapid intrusion of artificial intelligence in our lives. But would banks remain lame ducks and easy targets? Surely not! It wouldn’t be surprising that many might merge with mobile device manufactures and telecom providers or even start buying them out.

The landscape is bound to become rebellious and a brave new world is about to emerge and it may just not be dystopian!

Mufaddal Khumri

October 31, 2017