Is cryptocurrencies the perfect financial services storm in a teacup — Revolut UK Neobank. Thoughts!
The “blockchain” has become a buzz-word in most circles and it is often described in terms of its disruptiveness. It is certainly the case that most sectors have experienced disruption in some shape or form, however, the financial services sector appears to have taken a greater share of disruption so far through crypto assets, also referred to as cryptocurrencies. Although developed nations stand to benefit from the blockchain phenomenon, there is growing evidence that developing countries could see more tangible benefits, should the correct approach be adopted towards implementation. A closer look at one project, in particular, serves to demonstrate how traditional banking can be threatened by crypto assets.
The Revolut project based in the UK has managed to harmonise traditional banking with digital assets in a very groundbreaking and interesting way. Issuing a MasterCard and combining it with a mobile app which enables withdrawals at ATMs direct from crypto assets to fiat. Another interesting feature has been payments at a point of sale straight from crypto assets and holding fiat in multi-currencies whilst also holding multi-cryptocurrencies- all under one app is quite a milestone for fintech (read more on how Revolut is leading cryptocurrencies). The ability to shapeshift from one currency/crypto asset to another with the click of a button thereby by-passing bureaux de changes and traditional digital asset exchanges is quite another thing. Revolut also enables sending all currencies including crypto assets seamlessly and at no fees. Sending money has become as simple as sending a text message as one only needs to send a link for the receiving party to start “downloading” money. If all this is not the embodiment of disruption, then it is quite telling of what is still yet to come.
It is worthwhile to explore how projects such as Revolut can disrupt financial services in Zimbabwe and Africa as a whole.
A lot of fees are incurred in moving these funds around as parties have to pay fees due to conversions to USD from native currencies. These fees amount to money which is being lost in transactions especially when looking at remitting the volume of sums stated above made up of individuals and business remittances. Deploying technology similar to what Revolut is employing could increase funds available in the system and for consumers. It will make it possible to send sums a low as $1, which is currently uneconomical if not impossible due to red tape and fees. It could encourage the remittance of funds from across the globe in a more efficient way.
It is also important to note the benefits which this system could bring to businesses which are struggling to pay suppliers because banks are unable to provide the necessary guarantees for payments abroad for one reason or another when companies have funds held in bank accounts. With a solution similar to Revolut’s, businesses will be able to hold funds which are not required for immediate use in the long term in crypto assets thereby benefiting from any increase in value, which is better than the low interest given when held in current accounts which actually cost money to maintain. Individuals could also benefit from the same. As an example, if one is to look at the historic value of Ethereum some interesting facts can be established. As of 12th January 2012, 1 token of Ethereum hit the high value of a meagre US$1.07. In contrast, at the time of writing this article, 1 Ethereum token is worth US$244. With the benefit of hindsight, a business which would have taken a strategic view and invested in Ethereum on the long term would not have required to make a huge investment to get a windfall in 2020. The positive news is that Ethereum still looks like a promising project and in the next few years, someone could be drawing reference to the price in 2020 and suggesting that it was too low. Mass adoption of crypto assets by traditional financial institutions is likely to result in prices climbing sharply. It is expected that crypto assets will reach a market capitalisation of US$40 trillion at some point in the future, a huge increase from the current US$220 billion.
The other benefit of the Revolut solution is that it makes it easier for technology dinosaurs to access the crypto-assets market within an environment which carries a low risk. This has been the main barrier to adoption and this new product on the market is evidence of crypto- assets getting embedded into traditional financial services for the average person. Acquiring crypto assets has become as easy as riding a bicycle, a departure from the tasking process, which until now has been reserved for those who are tech-savvy and possibly those with some experience in trading stocks and shares. Revolut is regulated by the UK Financial Conduct Authority, which means that there is some level of protection and redress for consumers should there be a problem. To enable a similar project to be adopted in Zimbabwe, regulators would have to approach this space with an open mind in order to accommodate innovation. Money laundering risks which are often cited by regulators are managed in the Revolut solution by not allowing external deposits of crypto into accounts. This means that Revolut accounts can only be funded through bank accounts whereby users would have already gone through AML checks. Further checks are also done when signing up for the Revolut account. This development in financial services coupled with the launch of various cryptocurrency derivatives suggests that the crypto assets space is gaining momentum and getting closer to maturity. The fact that major financial institutions such as Nasdaq Stock Exchange, Goldman Sachs, JP Morgan and the likes have thrown their weight behind the sector means that crypto assets are beginning to find a place within the financial ecosystem.
The implications are that developing countries will have to warm up to these new developments. Getting the level of investment required is not going to be an easy process. It will require friendly policies which make businesses want to invest in the country. Creating a hostile environment through bans will only exacerbate the crisis and turn investors away. It would appear that some African countries have woken up to this reality and are making headway in this regard and the most unlikely culprits have been quick to embrace this technology like a modern miracle. One such place is Uganda which stands to get a huge investment from Binance, one of the biggest crypto assets exchange in the world-measured through profits made. This will see Binance launch in Africa, a step which is likely to bring down prices of crypto assets which have been trading at a premium in Africa at par with most parts of the world. These businesses are unlikely to commit to investing in jurisdictions which are hostile towards their core business and interests.
In a nutshell, the arrival of Revolut on the market gives banks the long overdue kick in the teeth and delivers the message loud and clear-transform or you could become what cd’s have become to music. The debate has long been about ‘if’ crypto assets will deliver but this conversation has moved on to a case of ‘when’ it happens. There has been a lot of complacency within the banking sector since the invent of plastic card payments. Crypto assets are the perfect storm brewing in a teacup, ready to engulf the banking sector. The next revolution is going to be a gargantuan leap, and it will take a lot of faith to embrace. What seems to be clear about this space is the fact that it brings along a lot of promises to consumers and many are clinging to the hope that this will translate into actual benefits.
