In 2007 the world, the economy and the way in which we trust it changed forever. You and I always knew, or at least suspected that the fat cats on Wall Street were up to no good. That the trust we placed in them was naive and dangerous, but the true understanding was never felt in the practical sense until the crisis. Since then we have lacked confidence in the market, and experienced unprecedented levels of fear
But this same period has given birth to an exciting sense of disruption and empowerment.
This is no better illustrated than by Bitcoin, and the blockchain technology that sits behind it. At a high level this technology facilitates transactions between people and/or business without the need of inefficient, slow and expensive banking systems. The transaction is verified by the systems own user base, who are unknown to each other. The transaction is only settled once verified by the user base.
It is not only the banks being disrupted, Uber has caused mayhem to the traditional taxi market, and the governments which profit from the expensive licencing. The hotel industry has suffered from the looming threat of Airbnb while websites like Freelancer and Fiverr have opened up new markets of labour to build websites and design logos.
The progress from the above listed companies has been rapid. It has enabled consumers to cut out the middle man and access services and products which would otherwise not be afforded to them. It creates revenue streams for everyday people like you and I to leverage our existing and idle assets. But the question must be asked…
Why is the take up for fintech disruption so slow?
DigitalX is an ASX listed company seeking to figure this out. DigitalX (ASX:DCC) describes itself as a disruptor in the payments industry, focused on remittance and digital currencies. It also, as you’d expect is self-described as ‘innovative’. How exactly? Well they have developed two septate products which they anticipate will shake up the sector.
The first one is called AirPocket. This is still in a development phase with beta testing being carried out. Leveraging block chain technology AirPocket connects users with a peer to peer network so that they can transfer money across currencies. There will be a ‘broker’ who is anybody with a modest cash float who facilitates the transfer of money.
The application of this has been illustrated via a recent announcement by the company. Through a major deal with a Latin American telco, US users will be able to send money to Latin America. Essentially, people who have moved from South America to the USA wishing to send funds home to family will be able to do this via a mobile application, in a low cost and flexible transaction.
The second product is DigitalX Direct. This is kind of like the above explained AirPocket, just instead of low value remittance, they are going after the big fish, institutional investors. Again, this technology is in its infant stages but currently the breadth of services includes ‘escrow’ and ‘liquidity’. This business has the potential to go after the high value transactions currently delivered by the big banks or locally to home Computershare (ASX:CPU).
Now the above is all good and well for us speculative investors, but it doesn’t really answer the big question. Why are our friendly banks not being disrupted? Or least why are they not being disrupted quickly?
Well the answer comes down to two main points.
The first one is regulation. While the peer to peer transfer of money is a market ripe for disruption, the big end of town being settlements and remittance remain largely tapped up in regulation. While the ASX is exploring the potential for block chain settlements for the near real time settlement, ASIC and the RBA are not ready to endorse an unregulated, peer validated settlement process.
The second point is that the technology, while practical and functional is not developed to a point which can replaced the sheer volume of transaction every day. The model relies on the chain’s network to validate transactions, hence when an uplift in volume occurs, the chain, or human users are placed under pressure to achieve it’s ‘near real time’ settlement.
While there is significant appetite amongst us everyday investors for exciting tech stocks, they are sadly far and few between. We covered off a few here at Blue Lake Invest like Senetas, Freelancer and Seek. But the fun doesn’t stop there, my next post will be about a home grown technology disrupting the market much like Uber and Airbnb, if you want to read about it then subscribe below.