Alt-Banking, Mobile Payment Systems and Blockchain Are Disrupting Financial Bedrock Institutions

October 16, 2018 – Banking is never going to be the same in this century as new technology disrupts everything you consider the fiscal norm. Today our banks are still presumed to be institutional bedrocks, just as is physical money. But the truth is fewer of us carry bills and coins these days substituting physical money by using credit and debit cards, and electronic wallets and fintech applications on our smartphones. And since banks have been around to primarily keep our physical money safe, they soon may find themselves fiscally disrupted by the emergence of Internet competition.

Is Good Money the Beginning of Alt-Banking?

A mobile banking wallet that lets you keep all of your financial assets in one place, Good Money gives users of its service a no-fee online “bank” with higher than average interest-bearing chequing and savings accounts, the ability to manage cryptocurrencies, and the ability to determine the mix of your investments. So you can nix buying mutual or exchange-traded funds that force you to hold fossil fuel stocks and other assets that don’t fit with your personal values.

Good Money is among the first apps to begin disrupting banking as we know it, creating an opportunity for the billions who will soon be connected to the Internet from the Developing World. We are talking about 8 billion by 2024 with 4 billion of those not accustomed to banks as we know them in the Developed World. So without any “bank” experience, it is unlikely that most of these new Internet-connected users will never cross the threshold of a bricks and mortar financial institution. Instead, their entire banking experience will be facilitated by smartphone apps and high-speed connectivity as 5G networks become ubiquitous.

Mobile Payment Systems Becoming a Developing World Standard

The Bill and Melinda Gates Foundation has backed a new start-up bKash, a Bangladesh-based mobile financial online service has in its short existence amassed over 17 million users who use it to store their money online, do daily shopping, pay salaries, purchase insurance, and get loans. Ant Financial, an Alibaba subsidiary, has purchased a 20% stake in bKash with the goal of adding even more to its growing list of products and services.

In China, Ant Financial facilitated $8 trillion US in transactions and online payments in the last year. The company currently has a $150 billion valuation, twice that of Goldman Sachs.

M-Pesa, a mobile payment system is offering banking services to 30 million customers in 10 countries in South Asia and Africa. Pesa is the Swahili word for money, and M-Pesa is quickly becoming a replacement for traditional banking. Even India is using it to pay pensions of retirees living in remote parts of the country rather than trying to send them cash or cheques. How does M-Pesa work? It uses agents to turn mobile phone minutes into money. People text a payment to anyone with a smartphone with a SIM card that recognizes these agents. In Kenya, it has become a dominant form of banking with 96% of households using the embedded app.

Banks Like Wells Fargo Will Soon Lose Out to Cross-Border Payment Apps

Conventional banking can move money on your behalf from one country to another through a global network known as SWIFT. But that moniker is hardly an apt description since money sent this way moves glacially slow taking up to 5 days to get to an intended recipient. During that time you the sender are not only subject to the daily changes to currency exchange rates, but also have to pay the banking fees charged to facilitate the transaction at both ends.

Well IBM, that computing institution that brought us mainframe computing, is redefining cross-border payments with an international remittance system called Stellar. It can process three times the number of daily transactions when compared to the SWIFT network. It uses blockchain technology processing each transaction in less than 5 seconds. And its fees are significantly lower than SWIFT running at 1 cent per 600,000 transactions. That’s almost nothing when compared to what you pay today even if you were to wire money through the post office. And Stellar also uses its platform to provide mobile-to-mobile money lending services, something SWIFT will never do.