Financial services new Technologies
I have always been interested in change and evolving technologies. This interest was developed during my photographic career while experiencing first hand the digital transformation of the photo industry. I have a blog post detailing this experience and what I learned. That post can be found here.
My experience with my two e-commerce websites over the last ten years has further increased this interest. So my experience as a credit union director has naturally been focused on new technologies and financial services. This post is to help explain how new technologies are evolving and how they may disrupt but also improve the financial services industry. Comments and questions are appreciated and can be posted at the bottom of the page.
Open banking, or as it can also be referred to, Consumer Directed Finance, is coming soon to a financial intuition near you. The road map for introduction in Canada is the beginning of 2024. Open Banking has been available for the UK, European and Australian citizens for a few years. The introduction in North America has been slower.
What is Open Banking?
There has been a large increase in the collection of personal data in the last few decades. Personal data is now sold, used and distributed in many ways that were unthought of before the internet and digital transformations. As the use of this data has increased and become valuable, the question has risen, who should own and control personal data? The answer to this question is changing the direction of commerce and globalization of industries. The answer, individuals own their data and should control the use of their data.
Data has been collected and used in the financial industry for ever. It helps us get a loan and establish credit. Our data forms the base of our relationship with our financial instructions. But as it is now, we do not own or control our banking data. This will change with open banking.
Like other countries that have open banking, in Canada regulation will be put in place that will secure the sharing of banking data. Individuals will have full control over what data is shared and who the data is shared with. Companies that you will be able to share your data with will be vetted and certified before they can participate in Open Banking. If your credit union is certified to participate in the open banking system then you will be able share your data with other participating business.
The sharing of data will open the door for more competition in financial services. I have purposely made this explanation as simple as possible, there is much more involved for this sharing to happen in a secure way. But the bottom line is that individuals will own and control their banking data.
Some will argue that for Open Banking to work there will need to be a better ID system. Just think back to the last time you tried to open a bank account. Our current system for personal identification is not efficient, secure or convenient. Having your personal identification stolen can be disruptive and costly.
Digital Identification using blockchain technology will be the next step for personal identification. With your identification using a blockchain to store, to verify and control your information, your information will be more secure. With a digital ID a person will be able to control the flow of personal information. It will be on a need to know basis. An example now is renting a car. When you hand over you drivers license you hand over all the info on the license to someone who may lose or miss use the personal information. With digital ID you can provide just the info that the car rental needs and you can control how that info is used. Digital identification will enhance new technologies and financial services.
Blockchain and Crypto Assets
A blockchain is a distributed leger. Or you could say, a blockchain is a system of decentralized trustless verification based on cryptography. Blockchains are a form of data management. The largest and most well known blockchain is the Bitcoin cryptocurrency blockchain. But there are many different blockchains that provide different solutions for recording and sharing data. You may have heard a lot about Bitcoin and cryptocurrencies but it is unlikely that most people have heard about how blockchains are being used to streamline data processes. Some examples of companies that are either using or are in the process of building blockchains into their processes are, Starbucks, Ford, Lockheed Martin, IBM, Barclays, HSBC, VISA, Walmart, Anheuser Busch, DHL, Pfizer, Scotiabank. A quick google search will provide you with hundreds if not thousands more. This link provides a list and explanation of the top 50 companies using blockchains today.
For public blockchains like Bitcoin, cryptocurrency is the fuel that makes them work. The incentive for data centers, crypto miners, to process and verify the blockchain transactions are paid by cryptocurrency. Because the financial services industry depends on vast amounts of data, blockchains will be part of the future.
CBDC or Central Bank Digital Currencies
Most countries are now exploring future digital currencies and a few have adopted central bank digital currencies. A CBDC is a digital currency that it backed by a countries central bank. Just like the Canadian dollar is backed by the Bank of Canada and the Canadian Government. Canada, like 19 of the 20 G20 countries are exploring implementing a CBDC. A CBDC will be built using a blockchain. There are potential benefits to going cashless, for people and businesses. A world without cash would mean…
- Less chance of getting robbed
- Less tax fraud, employee theft, and money counterfeiting
- Faster service that is more efficient
- Fewer germs passing around
But there are obstacles and dangers with a CBDC.
- It excludes people without access to bank accounts, credit, or mobile technology.
- Excludes people who aren’t digitally literate
- Privacy issues. No anonymity
- It could pave the way for a financial surveillance state where every transaction is tracked and recorded.
The bottom line is that a Canadian CBDC may be implemented and designed much differently than a country with an authoritarian government. But like all new technologies the efficiency and cost saving benefits combined with new features like being able to program your money for how it is used, will make CBDCs a reality in the future.
This link will provide a closer look at CBDCs and a cashless future.