A slate of transformative technologies, from blockchain to quantum computing, is shaping the future of banking and payments, bringing new risks and opportunities for firms engaged in cross-border business.
The rapid pace of change and the dire need for both companies and regulators to keep up was explored in a webinar on the future of financial technology convened in April by the Georgia State University Center for International Business Education and Research.
Evaristo Doria, a professor in GSU’s Robinson College of Business, said during an introduction that companies aiming to compete globally need to “master the present, and this is fundamental for survival, but they also need to pre-empt the future, and this is fundamental for success.”
That future seems to be coming on more rapidly as the Internet itself undergoes a change from simply an interlinked clearinghouse of information to a web of ecosystems bigger than what any single government or private-sector actor can corral.
Constructing trust with blockchain
One example is blockchain, the distributed ledger technology that burst onto the scene as the means for verifying transactions in bitcoin, the first major cryptocurrency.
This underlying technology, which lays out each transaction on a transparent log distributed across multiple servers globally, has given rise to a wave of activity in “decentralized finance” — the exchange of value outside the purview of a central bank or national government. Non-fungible tokens, certificates verifying digital assets like GIFs or other pieces of art, provide one example of how this is evolving.
But this is just a foretaste of how blockchains could change business, said Jai Singh Arun, senior program director at IBM Research.
“Think of blockchain 1.0 as digital currency, blockchain 2.0 as digital economy, and then 3.0, which we will see in the next five years or so, is digital society,” Mr. Arun said during the discussion.
The technology, he argues, could be used to replicate on a global scale the trust networks allow known parties to transact with one another, smoothing the way for digital commerce in areas where it has not traditionally been possible.
Other use cases include cross-border payments, syndicated bank loans and even traditional logistics, where proponents argue that the technology could reduce delays and boost visibility in the supply chain. Identity authentication is another challenge blockchain is being used to solve as it goes more mainstream.
“We know, as of today, over 40 different countries’ central banks are experimenting with blockchain technology,” he said. He noted that U.S. President Joe Biden’s March 2022 executive order calling for regulators to look into digital assets was an acknowledgement that governments see their rise as inexorable.
Blockchain’s promise, especially when paired with technologies like the Internet of Things, is the reason some $25 billion has been invested in blockchain-oriented startups over the past few years, Mr. Arun said.
Quantum computing makes new modeling — and de-risking — possible
Just as powerful is the coming revolution in quantum computing, which could transform myriad industries its ability to make calculations exponentially faster than classical computers, said Enrique Lizaso Olmos, Spain-based founder and CEO of Multiverse Computing and a governing board member at the European Quantum Industry Consortium.
On top of ambitious corporate research, governments are investing billions into the development of quantum computing, which processes algorithms using subatomic particles that aren’t limited to binary states like the electronic bits of standard computers.
This has huge implications for cryptography and a variety of other fields such as machine learning and artificial intelligence, which rely on parsing out huge datasets, or in cases where simulations must account for numerous variables.
“The risk is tremendous just to lag behind,” Mr. Olmos said.
Investment banking is one of the areas ripe for disruption, as quantum computers could produce better predictive models that could help banks with portfolio management and fraud detection, while also safeguarding against risk in the financial system.
In the 2008 global financial crisis, trades of bundled financial instruments were made electronically with such speed that no one could keep up with the spiral as it ensued; quantum computing could have helped see that coming, Mr. Olmos said.
Fintech in everything: embedded finance
Blockchains and faster computing show the highly contingent relationship between regulators and incumbents often preserving the status quo and the disruptors that seek to change it, says Nir Netzer, head of the Israeli fintech association Fintech-Aviv.
On one hand, the emergence of decentralized instruments like cryptocurrency is rendering the traditional banking sector less powerful. That became clear after Russia’s invasion of Ukraine and its banks’ subsequent removal from the SWIFT system for global interbank payments, Mr. Netzer said.
“(SWIFT) is powerful, but it’s not a must-have,” he said, noting that many Russians were still able to move their assets outside the country using cryptocurrency and other alternative payment networks, which are on the rise.
At the same time, regulators’ embrace of “open banking” — where traditional banks are required to give consumers stronger control over their own data and to open their platforms to integrations via APIs — has encouraged the emergence of many business-to-business fintechs that sell to banks instead of trying to upend them.
Israeli disruptors like social investing app eToro and cross-border payments provider Payoneer, both of which went public via SPACs that raised billions on U.S. markets, may hint at a different story, but most fintech success are “in the enablement side and not on the disruption side, and we see that the regulation is actually enabling that and encouraging that.”
Fintech does include payments, he said, but it’s better viewed the infrastructure underpinning new business models and marketplaces — think the background financial transactions that happen via Uber and AirBnB, Mr. Netzer said.
“You can try and imagine where the world is going with the term ‘embedded finance,’” Mr. Netzer said. “There is a financial aspect to everything we do.”
View the full webinar above or here, and view past events in the GSU-CIBER International Business Webinar Series here.
Next in the series: Revisiting Export Strategy: Research and Practice on Oct. 20 at 11 a.m.