Cryptocurrency is here, where are thou (Local Banks)?

A few years ago, a certain disruptive technology that was given to kids and online game lovers for free is currently attracting interesting headlines. Now it is hard for a week to pass without it featuring in financial and business news. It has arguably created a lot of first-generation millionaires within the shortest span than any other technology. What am I talking about? Crypto currency

Cryptocurrency?

Yes, cryptocurrency for the sake of a simplistic argument is a digital currency. However, the technology that supports it makes it possible to do everything money does and even more. Unlike fiat currency which is government sanctioned, cryptocurrency is decentralized hence free from control by any “Leviathan’. It is open sourced hence has a public ledger called Blockchain where validated (confirmed) transactions are added. It is created when a miner solves a complex mathematical or computational problem. It is usually finite and driven by the forces of demand and supply. The first (mother of all) cryptocurrency; bitcoin hit the headlines in 2009 after the 2007/2008 Financial Crisis. The idea behind its creation is to take power from financial intermediaries (banks) and hand it over to the masses hence its reliance a peer to peer networks.

Acceptance

Through human history, it can be concluded that human beings drive the value of currency through its usage. Bitcoin gained attention when Wordpress started accepting it as one of the payment means. Many business giants started flirting with bitcoin in 2014. For example, PayPal in September 2014 had integration with Braintree and later partnered Gocoin, Coinbase to accept bitcoins. Microsoft, Intuit and DISH network accepted bitcoin as a payment option in the same year. For Microsoft, they have moved a notch higher; they led the development of Azure Blockchain and in Excel 2017, users can calculate, analyze and format bitcoin on this platform.

MAGIC Wand

Cryptocurrency among others is designed for easy transfer of money at a cheap rate, with greater comfort and convenience. To put it simply, it offers choice, comfort, and convenience. These attributes make it a force to reckon with. It has relatively the lowest transaction cost, high speed and provides huge comfort to its users. Cryptocurrency enthusiasts such as Sir Richard Branson, Bill Gates, Christine Lagarde (IMF boss) see it as the means of doing global business and removing one of the bottlenecks of remittances (huge transaction cost). This they believe will go a long way to reduce global poverty and increase ease of doing business.

It is therefore not surprising why many banks including traditional money transfer mediums (Western Union) are exploring ways of staying relevant amidst cryptocurrency. For the past five (5) years, smart banks have been making moves to either understand the Blockchain technology or find ways of integrating the technology in their operations in order to stay relevant. Many did this by commissioning several research projects on this field. BNP Paribas of France recent report on Cryptocurrency likened this fledgling industry to the system engine having the potential to transform finance and beyond. As far back as 2014, the People Bank of China made moves to run its prototype of Crypto Currency.

Around same period Bank of Japan and European Central Bank commissioned a joint project on blockchain technology. It is therefore not surprising why Japan and South Korea have a very thriving cryptocurrency market. Again, it is also not shocking why China despite its temporary ban on Initial Coin Offer (ICO) activities are still working behind the scenes to come out with a comprehensive framework to regularize the activities within the cryptocurrency space.

Again, Skandiabanken (bank) in Norway has gone a notch higher (they started by linking clients’ accounts to coinbase accounts) and now accepts bitcoin as other investible assets. On the European front, the European Revised Payment Services Directive (PSD2) is slated to start in 2018 and with this, banks can share clients’ data with third-party open API and can also provide cryptocurrency services. This means with the PSD2, aside Online banking services, fintech services and Open API services will be allowed. The content of PSD2 is not surprising if you conduct an audit on the number of bitcoin ATMs in Europe.

Moving from Asia, Scandinavian countries and Europe to my home; Africa, after almost four to six months of Stakeholder engagements by the Central Bank of Nigeria (CBN), a comprehensive framework is almost ready on this industry and CBN has come out to make a bold statement to the effect that cryptocurrency will be an alternative money in Nigeria because “they can’t stop bitcoin”. Really this is an impressive news. There are outlets in Kenya and South Africa that accept bitcoin as means of payment

Where is Ghana?

Obviously, Ghana is lost in all these discussions and that is a huge source of worry. It must be a worry to the government especially local banks. For the international banks, it is easier to transfer innovations but the question is how prepared are our local banks to accept the blockchain technology? The truth is gradually Mobile banking and blockchain technology are displacing branch –centered activities of banks. Again, in not too distant future, initiatives may not need bank financing because of raising monies through ICOs. Banks that survive on charges from these services may be obsolete and out of the game. With this adoption pace, I see only indigenous Ghanaian banks being the only casualties with swift action is not taken. We cannot continue to be laggards in this fast-changing world so let’s start acting now.