The Bank App: Who will win in Retail Banking

The Google of Capital—that’s what Jeremy Allaire is building, “a consumer

finance company providing products to consumers to hold money, send money,

send and receive payments; the fundamental utilities that people expect out of

retail banking.”

42 He sees it as a powerful, instant, and free utility for anyone

with access to an Internet-enabled device. His company, Circle Internet

Financial, is one of the largest and best-funded ventures in the space.

Call Circle what you like, just don’t call it a bitcoin company. “Amazon was

not an HTTP company and Google was not an SMTP company. Circle is not a

bitcoin company,” said Allaire. “We look at bitcoin as a next generation of

fundamental Internet protocols that are used in society and the economy.”

43

Allaire sees financial services as the last holdouts, and perhaps the largest

prize, to be fundamentally transformed by technology. “If you look at retail

banking, there are three or four things that retail banks do. One is that they

provide a place to store value. A second is that they provide some kind of

payment utility. Beyond that, they extend credit and provide a place for you to

store wealth and generate potential income.”

44 His vision: “Within three to five

years, a person should be able to download an app, store value digitally in

whatever currency they want—dollars, euro, yen, renminbi, as well as digital

currency—and be able to make payments instantly or nearly instantly with

global interoperability, with a very high level of security and without privacy

leakage. Most importantly, it will be free.”

45 As the Internet transformed

information services, the blockchain will transform financial services, instigating

unimagined new categories of capability.

According to Allaire, the benefits of blockchain technology—instant

settlement, global interoperability, high levels of security, and nearly no-cost transactions—benefit everyone whether you’re a person or a business. And what

of his plan to make it all free? Heresy! say the world’s bankers. Surely, Goldman

Sachs and the Chinese venture firm IDG did not commit $50 million to create a

nonprofit or public benefit company!

46 “If we’re successful in building out a

global franchise with tens of millions of users and we’re sitting at the center of

transaction behavior of users, then we are sitting on some powerful assets.”

Allaire expects Circle to have “the underlying capabilities to deliver other

financial products.” Though he wouldn’t speak to it specifically, the financial

data of millions of customers could become more valuable to the company than

their financial assets. “We want to reinvent the consumers’ experience and their

relationship to money and give them the choice of how their money is used and

applied and how they can generate money from their money.”

47 Leaders of the

old paradigm, take notice.

Companies like Circle are unburdened by legacy and culture. Their fresh

approach can be a big advantage. Many of the great innovators of the past were

consummate outsiders. Netflix wasn’t invented by Blockbuster. iTunes wasn’t

invented by Tower Records. Amazon wasn’t invented by Barnes & Noble—you

get the idea.

Stephen Pair, CEO of BitPay, an early mover in the industry, believes

newcomers have a distinct advantage. “Issuing fungible assets like equities,

bonds, and currencies on the blockchain and building the necessary

infrastructure to scale it and make it commercial don’t require a banker’s CV,”

he said. For one, “You don’t require all the legacy infrastructure or institutions

that make up Wall Street today. . . . Not only can you issue these assets on the

blockchain, but you can create systems where I can have an instantaneous

atomic transaction where I might have Apple stock in my wallet and I want to

buy something from you. But you want dollars. With this platform I can enter a

single atomic transaction (i.e., all or none) and use my Apple stock to send you

dollars.”

48

Is it really that easy? The battle to reinvent the financial services industry

differs from the battle for e-commerce in the early days of the Web. For

businesses like Allaire’s to scale, they must facilitate one of the largest value

transfers in human history, moving trillions of dollars from millions of

traditional bank accounts to millions of Circle wallets. Not so easy. Banks,

despite their enthusiasm for blockchain, have been wary of these companies,

arguing blockchain businesses are “high-risk” merchants. Perhaps their

reluctance stems from the fear of hastening their own demise. Intermediaries have sprung up between the old and new worlds. Vogogo, a Canadian company,

is already working with Coinbase, Kraken, BitPay, Bitstamp, and others to open

bank accounts, meet compliance standards, and enable customers to move

money into bitcoin wallets through traditional payment methods.

49 Oh, the irony.

Whereas Amazon could leapfrog incumbent retailers with ease, the leaders of

this new paradigm must play nice with the leaders of the old.

Perhaps we need a banker with Silicon Valley’s willingness to experiment.

Suresh Ramamurthi fits that bill. The Indian-born former Google executive and

software engineer surprised many when he decided to buy CBW Bank in Wier,

Kansas, population 650. For him, this small local bank was a laboratory for

using the blockchain protocol and bitcoin-based payment rails for free cross-

border remittance payments. In his view, would-be blockchain entrepreneurs

who don’t understand the nuances of financial services are doomed to fail. He

said, “They are drawing a window on the building. Making it look nice and

colorful. But you can’t assess the problem from the outside. You need to talk to

someone from inside the building, who knows the plumbing.”

50

In the past five

years, Suresh has served as the bank’s CEO, CIO, chief compliance officer,

teller, janitor, and, yes, plumber. Suresh now knows the plumbing of banking.

Many Wall Street veterans don’t see a battle between old and new. Blythe

Masters believes there are “at least as many ways for banks to improve the

efficiency and operations of Wall Street as there are opportunities for disruption

from new entrants.”

51 We can’t help feeling the tides turning toward the

radically new. That’s why the Big Three TV networks didn’t come up with

YouTube, why the Big Three automakers didn’t come up with Uber, why the

Big Three hotel chains didn’t come up with Airbnb. By the time the C-suites of

the Fortune 1000 decide to pursue a new avenue of growth, a new entrant has

broadsided them with speed, agility, and a superior offering. Regardless of who

lands on top, the collision between the unstoppable force of technological

change and the immovable object of financial services, the most entrenched

industry in the world, promises to be an intense one.