The Future of Digital Banking
What is digital banking?
In the past, there was cash, then cheques, then cards and today, we have a mix of them all. But as technology has evolved and advanced, the monetary tools of the past start to disappear. We have seen all things paper vanish while currently cash is being replaced by a more efficient version of barter....Digital Money. You may be thinking "I already use digital money" and while you are partially correct, online banking is far from digital.
"Digital only" does mean the use of money located on a database, however this explanation will fall short with the future of money being rolled out currently! Lets dive in further!
How money is evolving
As we become more of a "digital society" so too, does our money. In what we call the legacy banking system, changes have already begun to occur with one initiative called ISO20022. This is the formal policy that requires the update of our banking infrastructure in place today. The update is to be in effect no later than November 2022 and is a global banking rollout.
The policies being implemented will allow banks to create and use digital currencies as the policy specifically relates to the messaging system used to send financial transactions. Cryptocurrency has a bad name, but it is exactly the same technology that our banks will be using in under 12 months. Of course with more strict KYC and AML policies but same none the less.
ISO20022 is important to unlocking the 5 TRILLION dollars per day locked up in the current banking infrastructure. This is due to the slow settlement times of the current messaging system. For example;
If you send $50 dollars from and Australian bank to China, there could be 3-4 banks who ALL have to hold the $50 on their books as the money moves through. Once China receive the money, the signal is sent back through the banks to release the money from their books. This process as you can see holds a lot of money up in the system.
Ultimately, we call this an "illiquid market" because the money is stuck. Therefore, the amount of tools that need to be added for the banks adds even more debt to the system because more liquidity is needed to cover banking expenses. Things like "interbank lending" is just one.
Where it is all headed
CBDC. Central Bank Digital Currency. Get ready to start hearing all about them! The end result of Global currency is the implementation of digital currencies by Central Banks. Each central bank will issue a digital version of their Countries currency. But there will need to be an FX currency, something in the middle to exchange on neutral ground so that an exchange rate can be found. A "bridge currency" as we can call it, will be the intermediary between ALL Countries, I won't speculate on the Company but I am sure alot of you reading this have an idea.
Many of the rural markets run of cash, this limits the money coming into the local economy, if these markets were to use digital banking apps to trade, they would unlock the local economy to the outside world allowing for the injection of money for the increase in goods and services which ultimately lead to a better life.
By having a central universal currency, the exchange rate will be constant, as liquidity pools are created by central banks to strengthen their currency. Soon, you will be able to swap into any currency in the world, in seconds for almost nothing! Imagine the outcomes of this on Countries export and import scale!
Defi digital banking is going to be just as big! Underdeveloped Countries within Africa, Middle East and South Asia all have billions of unbanked people. They don't have identification or a means to get it but they still need to be banked right? This is where decentralized finance will fit in, regulated Companies that offer a low entry level banking. A digital means to barter that brings efficiency and safety to those in poor regions. Safe from theft and other violence. Safe to trade and barter. Safe enough to earn and save then possibly get away from the life they have into a better one!
DeFi might be unregulated and little known today, but thriving banking services will thrive one day soon!
DeFi and CeFi
Moving money won't just be for banks, private Companies like Charity Token will be one of many niche money movers. Industry specific Web3 start ups will be abundant, providing platforms to alleviate the shortcomings that are prevalent in each Industry.
Regulations will eventually bring about controlled gateways in and out of the heavily regulated Centralized Finance world of banking through cryptocurrency exchanges and platforms alike. I am expecting these platforms to be almost as regulated as traditional banking services. This will include insurance, banking and loan products working together on platforms.
Money is evolving rapidly. Crisis to crisis event unfolding are speeding the transition up for everyone. While there are a lot of benefits to digital currencies, there too are dangers. They bring with them the control of automated computer code. Intent is written into smart contracts, by this I mean if the contract is written to be able to see AND edit your account balance, the bank can remove money just the same as how it got in there. Multiple code audits and even code intentions should be reviewed upon.
The trade off for supreme control of the currency, no more illiquid money held up, no more overdrafts, the bank will see everything...
What are your thoughts?