The Hidden War for Fintech Millennials; Open Banking vs Crypto
What is Open Banking? A protocol enabling developers to connect with bank APIs or other third parties to retrieve financial information requested by the user.
This is crypto’s worst nightmare.
For years, developers couldn’t make API calls to banks — this forced them to use solutions like PayPal or Blockchain. With open banking disrupting the banking industry, it also affects crypto:
Open banking is taking away crypto’s future innovators
Visa and MasterCard have been buying fintech startups for billions of dollars.
As most people have a bank account (in the western world), it makes open banking more convenient for the front-end user.
Startups know this and can now experiment with payment processing apps while compounding the tech with automation or AI.
So far we’ve seen:
Intelligent money management apps — all your bank accounts in 1 place, spending management, analytics, alerts.
Credit-lending apps — Proof of income and payment history, smarter repayments scheme.
Crypto has been around for 12 years, where did they go wrong?
The crypto community failed to establish a coin for transactions.
This prevented the global adoption of cryptocurrency in supermarkets, stores, subscriptions, etc.
Bitcoin was the frontrunner until the increase in transactions made it super slow for everyday use. Even though there are promising coins for transactions, the failed first impression of bitcoin carries baggage.
However, cryptos can still dominate in countries with developing financial systems as adoption is taking place. For example, Telcoin recently secured a partnership with ECPay so users can purchase Telcoin from ECPay’s 9000+ partner outlets.
Anyway, it’s important to know the permanent advantages cryptocurrency has over central banking…
Open banking doesn’t bypass the international transfer limitations or restrictions so it gives the incentive to use cryptos.
You can’t freeze or limit someone’s crypto wallet (cold storage). With the world going cashless, it’s the only way to have 100% control of your money.
While transactions are traceable through identifying your public key, your personal identity is private as it’s not on the blockchain.
How Cryptos Can Respond To Open Banking
Cryptos can increase their relevancy in a short time frame by going through the same transformation as bitcoin:
Changing their self-identity from currency to asset.
The demand and limited supply of bitcoin forced it to become digital gold — a store of value. Cryptos must also become a store of value so below, I’ve listed 4 ways they can do this…
1. Ecosystem Backed Cryptos
Most cryptos don’t have a cash flow business model.
This means they disappear when the bear market comes whereas the coins backed by an ecosystem survive due to profits, opportunity or incentive.
A good example is Nexo — a crypto lending platform.
Their main service has incentives such as no credit checks and instant credit lines. Plus, their revenue comes from their 5.9% interest on loans.
This adds equity to their crypto as it can be used to get a loan and by users holding it for long periods, they receive 30% dividends and this offsets the demand to supply ratio. Below is a diagram of their ecosystem.
Nexo’s crypto maintained a steady price for over 2 years while most cryptos are down by 90%+.
2. Product Backed Cryptos
Crypto needs to make an impact in day to day lives, physically.
Products that serve a purpose and utilize blockchain is the answer. As of now, we have Helium, a crypto company distributing hotspot devices and people earn their crypto when they use it. They are disrupting the way we connect to the internet, in our homes and outside.
When successful businesses integrate crypto into their ecosystem, that crypto instantly becomes valuable. For businesses to do this, the crypto would have to either solve a problem or add incentive. Telegram, for example, are creating a coin for their chat platform which has over 400 million monthly active users.
4. Merge With Open Banking
If you can’t beat them, join them.
Open banking apps that include crypto will help keep it relevant and there’s currently a use case with the mobile app Emma — it lets you connect to your bank accounts and crypto exchanges. More of this would exist when crypto is viewed as an asset due to less conflict of interest.
Cashflow and Incentive
That’s what innovators should focus on as it will train their minds to emphasize the importance of a business model. A business that takes value away from the marketplace won’t be found in the long run.
Let’s quickly talk about currencies…
Whether fiat or crypto, they have no intrinsic value as it’s backed by nothing. Instead, they can only have instrumental value — something which is good only as an instrument for something else. The US dollar, for example, can buy you food and shelter but saving it could decrease your wealth due to inflation.
Cryptocurrencies can only get more instrumental value once it’s used to buy goods and services at a mass scale. Open banking will increase the use of fiat and therefore, give it a more instrumental value which limits adoption for cryptocurrency payments.
Fiat currencies have won the transaction battle.
It’s time for cryptos to adapt and create their own lane by becoming full-time assets.