Are next-gen payment systems really new disruptive technologies?

We often assume that when we see new companies form, or do something revolutionary, or “disruptive”, that the ideation behind it is unique. The fact is though, most improvements we see in most spaces in our lives are an adaptation or evolution of something we have already seen in other industries.

As a quick thought on this topic, take a look at the telecom industry. When it started, the process was a manual and highly arduous process to connect a caller to the recipient. You rung an operator switchboard, told them the district number or area you wanted to connect to. They then connected you to that local operator; you then told them the number or person in the area that you wanted to get a hold of. Finally, after a good 20 minutes of waiting, you would get connected.

This changed significantly when you could directly call someone from your phone to theirs. Life changed overnight. The weekend calls to parents and grandparents began. Let’s fast forward to the innovation that was Skype!

They took the old world of calls, and brought it together with the internet. Most of the early Skype calls were still routed through telecom providers for the last mile. As a matter of transitioning people to a more digital existence, you were identified by an area code with a phone number. But at the backend, it didn’t really matter if your ID started with +44… or just @jack. The world around us has completely transformed, and now even with WhatsApp and Viber, we see that your mobile number is simply an identifier, and has nothing to do with a requirement of country or area code to process a data call, sending a text or a photo.

A similar leap is coming in the world of payments, but it isn’t really an innovation, as much as it is a smart application of data and resources that exist in our highly connected world. Take a typical remittance, something that started back in 1872 when Western Union began to “wire” money in the same way that they used to send messages across their existing telegraph network. We even use the phrase “wire transfer” till this day. That should be a clear indication to us all as to how slowly things have progressed in the world of payments.

Banks to a large extent have now moved to a process of holding currency floats, which is particularly relevant when it comes to cross-border transfers and payments. But from a fintech payments perspective, their thinking is still old school. It comes out often in conversations with bankers or people who work with banks. How do you move the money from A to B? What’s your FX exposure and how do you manage it along with country-specific regulations. The modern world of payments is a very different animal to the one that preceeded it. Much like in the case of Skype, it is all about data, and the movement of data as opposed to any physical connectivity or movement of money. Managing multiple currency floats reduces the need for fund transfers to be anything more than moving 1s and 0s from A to B. An example of this is TransferWise (founded by Skype’s first employee, coincidently). They manage the movement of a float, and settle their float on a regular basis through the more traditional banking rails. This ensures they are able to provide services at a much lower cost and much faster rate than traditional banks.

There is of course, still the issue of regulation. Regulation evolves and exists depending on the prevailing methodology or technology of its day. As banks were the dominant ‘technology’ for money transfer, the regulations are far more in line with them, than with the world of fintech. That is in large part the issue that we see with crypto-assets and crypto-currencies today. Regulators are in a banking mindset, and it takes a long time for the wheels to turn in order to accept and appropriately regulate this new world. That being said, it’s not a revolution, it’s an evolution in how we do things.

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