Have a little dream on me…
Image from International Business Times http://www.ibtimes.co.uk/blockchains-banks-zero-knowledge-proofs-1565764

Have a little dream on me…

...or a peek at recent financial technology trends and innovations.

Recently, I had the opportunity to participate on a panel around Blockchain in Finance. And since I am currently trying to define what I want to do as an innovator and beyond the horizon watcher, I started to survey the landscape of fintech technologies.

The interesting quest was mostly to find what are the underground vibes ready to burst and shake the world of fintech?

As I am aware that the technologies mentioned below exist today and some efforts to bring them mainstream are already underway, curiosity of how these could work independently or as a whole got me to dig more than I wanted for sure.

But here we have the few that I think will have a significant impact over the next few years. Simplifying the concepts and underlying technology for the sake of non-techie readers, the below ideas are just my views and just brush upon high level considerations.

It doesn’t mean I am right but from the past 10 years or so, spotting trends have been more than a hobby. I make a living out of it.

And to wrap up this long intro, the important commonality of all these trends is the need for instant trust between the various parties.

A - Instant P2P or the end of ACH.

 Well, the demise of the ACH network is a bit premature. However with the speed of technology changes and how a new generation of users is leveraging mobile and instant gratification (I did not say millennial), a significant re-architectural effort must happen in the world and the US to bring the banking infrastructure and networks on par with the speed of innovation.

 There are no obvious reason why we should still have to wait 4 to 5 business days to see the money from our friends popping up in our mobile wallet or being able to pay that bill online using a BillPay type service and waited 3 to 4 days to complete.

 The money is there and being able to instantly collect and distribute, would have a significant impact on the world of crowdsharing or collaborative economy (like Uber or Lyft drivers getting their rides paid right away, delivery and hospitality staffs having their tips right there at the end of the shift with a traceability control, etc…).

B - Blockchain and Hyperledger

 For the past few years, I have been providing some education/workshop around BTC and Blockchain to few VCs and companies here in Silicon Valley. Not that they are ignorant of the technology or potential but because any good VCs will collect all the various possible views to create the necessary intellect due diligence for their selves before even looking at any potential investment.

Anyway, what is important to understand is that the world of Blockchain enthusiasts and the traditional world of finance and banking do NOT speak the same language?

For too long, Blockchain start-ups and entrepreneurs have met with partners at large banks or networks and explained how their implementation of Blockchain was the best and would rock their world of traditional payment providers. Well, they don’t want to be rocked, they have specific problems to solve and Blockchain in its current form does NOT solve any of the critical ones.

In order to find the common ground to move Blockchain into mainstream finance, it needs to be severely reduced in scope and openness. - All of that going counter to the original spirit of the idea. - Well, it’s either that way or a slow down spiral toward abandonment after discouraging trials.

So what do I mean? Well, with hyperledger and multiple provisioned pre-approved micro blockchain clusters sitting within each bank or financial institution or networks, the financial institutions (FIs) can still control some of their critical technology and data functions, still hold the direct relations with the consumer but at the same can also better settle and communicate with each others especially when it comes into moving funds or exchanging documents. And that without the burden of foreign exchange cost or individual validation.

So while the Hyperledger Project focuses on openness, the successful architecture will have some proprietary block or cluster residing on the edge while a common core “linking” architecture will make sure all these clusters can communicate together and partially validate transaction from a ledger to the other.

Figure 1

In the chart above, the common core could be consensus manager and P2P protocol for sure (Instant P2P anyone?) and distributed ledger verification or validation but not storage. These elements could be shared or standardized among all the actors while leaving the more sensitive functions still under direct control of each banks or FIs. 

Figure 2

However, as I mentioned during that panel, the important part for the banks is not to know how that transaction happened but where it happened. So a centralized macro ledger or architecture can’t really work with the regulated world in which they evolve. It will need to be a hybrid solution quite well illustrated in the above visual Figure 2 (source: Linux Foundation).

 To make it more digestible to everyone, if you add crypto currency (BTC or others) to the equation, it’s like having PayPal running on the old Napster file sharing architecture.

C - API and open architecture.

 While everyone is talking about Open API and the technology sharing economy, it is becoming quite real with the EU pushing for the Open Banking 2016 initiative, aka PSD2 (sounds more like a new Star Wars droid) or Directive on Payment Services and its revision called Access to the Account (XSA2), “requiring banks to provide standardized API access to third parties under the auspices of the European Banking Authority (EBA) by 2016.”

It's a laudable effort but I realistically don’t think 2016 is achievable. However, it also shows that regulators are paying close attention to all these changes and starting to understand the power of technology to lift consumers experience to the next level.

Outside of the EU/UK, many major companies have already launched efforts around such premises like MasterCard, Visa, Braintree, Stripe, Intuit, Capital One, Google, etc…

So it’s just a question of time to find out which ones will win the heart and mind of developers. Additionally, I already explored some of the way developers look at these APIs to build their apps in that post. (are they geniuses or cheaters). 

It is also very important to understand what is meant by Open in the world of finance. As an old mentor told me in the days of Linux, Linux is free like a free entry into a bar. However, the drinks are not free. For Open architecture and APIs, just imagine you are looking at the content via a glass box. Yes, you can see it, you can figure out what it does, but you can't touch it directly without breaking the glass. 

D - Social Identity.

 Lastly, as I started this post mentioning the common denominator of trust we should be able to leverage the activities we have online and on social media to get rewarded as consumers but also to be given a better control of how and when our “identities” are shared among various online and offline properties.

 We all have multiple identities online and in real life.

  • Private: this is who we really are
  • Personal: this is who we are with close friends
  • Professional: this is who we are at work
  • Proprietary: this is who we are in a specific context
  • Public: this is what everyone knows about us or can be found on Google.

Full disclosure, this is what I am currently exploring with my new start-up LinQUID.

LinQUID was created on the foundation that identity is the common ground for everything we do. With conflicting position around privacy and trust, a need for an “identity wallet” has become as needed as a payment wallet became necessary to e-commerce in the late 90’s and a mobile wallet in the late 00’s.

Connecting the bots… I mean dots.

 With the 4 technologies above, it’s quite easy to connect the dots.

While blockchain and hyperledger can help to dynamize the fintech infrastructure, instant P2P will accelerate the flow of money through that infrastructure while Open API will allow innovative companies to either improve their clusters or the clusters of clients and create a new wave of services leveraging social identity to provide a verification of the user at various points of the process. That and maybe evolving into a potential bot for consumer but bots definitely are not yet ready for fintech primetime, just commerce. And that will be the topic of another post for sure :) 

Paul Elosegui

Partner at EUCAP European Capital Partners

7y

Quite right, without an identity layer in the infrastructure, finance is not possible. PKI is still too big. While, bitcoin's private key based identity is too hard for the average user. Good problem to tackle Hard problem with the presence of Google, Facebook and other verification services

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Walt French

Retired from Investment Industry; now doing a small s/w project

7y

“So it’s just a question of time to find out which ones will win the heart and mind of developers.” Odd to me that “developers” will be in the driver's seat, given the financial institutions' stakes and desire for control. The history so far doesn't suggest that the modules will self-assemble into functional ecosystems: something as barely-revolutionary as Apple Pay is coming up on its second anniversary and still the story is still about various Big Players controlling access, awareness, functionality, service levels and cost.

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Pragati Ogal Rai

Developer Relations | Web 3 Enthusiast |Entrepreneur | Author | Advisor | Diversity Advocate

7y

Very well said, Seb.

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