Fast, reliable, digital transactions are demanded more and more. Yet today’s payments world fails to live up to demands of cost, speed and efficiency.  Technology now exists and is maturing, to change systems for the better.  This means payment systems can be re-engineered as true utilities to optimize value transfer.  The significance of the rise of Bitcoin, other digital assets and other payments technology is the infrastructural ability to break monopolies of sub-optimal value transfer systems.

So here we are at beginning of a very significant evolution of payments systems. But there are blockers.

People want cheap, fast, reliable ways to transfer value. Fundamental, well-founded concerns, that financial institutions and regulators have failed to keep up with these expectations, is becoming more and more prevalent.  The problem is twofold: (1) incumbent firms that have no incentive to innovate and are content to exact unjustified rents from payments services users,  and (2) outdated statutory and regulatory schemes crafted before an Internet age that do not anticipate payment technologies that continue to mature.

P2P networks, in which value transfer and custody can be validated without a central authority, have advantages.  They include the capacity to send value all over the world to places without a modern banking system. Additionally, bringing down the cost of international remittances by removing the need to provide credit card information, and in turn, reduce the chances of identity theft and fraud.

The ability to own and validate digital assets, without a central authority, is causing banks and incumbents to up their game.  New entrants will design their systems to leverage this era of tokenization, whereby the registration, transfer and ownership of any item can be more easy, more efficient and less costly.

The classic type of market failure in monopoly-like systems is being eroded by ‘crypto’ banks.  Coinbase Custody, a service for storing large amounts of cryptocurrency, was licensed in Q3 2018 in New York to operate as an independent Qualified Custodian as a Limited Purpose Trust Company chartered by the New York Department of Financial Services (NYDFS).  There are other offerings worldwide that are licensing to provide utility settlement and clearing of payments using digital assets. This includes firms such as Knabu Distributed Systems, a blockchain technology company focusing on the problem of clearing transactions in London.

In addition to the reality of the unsustainable cost of cash, the rise of technology will continue to eat away at the legacy financial world.  Banks and firms that continue to fail to innovate with face real challengers who think differently and look to provide utility without unjustified rent.

The article has been contributed by Gabrielle Patrick, CEO, Knabu.me