It is often difficult to gauge what is actually converging in the financial sector if we view it through a magnifying glass focused on short time periods. To gain greater coherence of the whole picture, we must zoom out and observe the financial fault lines through centuries.
Coalescing of Power that Defines Our Lives
Since before the invention of pneumatic capsule transportation, two factors have continued to drive all financial progress:
- agglomeration of banking institutions
- speedy delivery of money
As banks absorbed each other and grew in power beyond the dreams of mere politicians, so too they were able to afford the funding of numerous technological projects to widen the access to money for the most people possible.
And as the banking ecosystem grows, a higher degree of control is maintained and further stabilized. We could say that we owe technological progress to cognitive outliers, but would they have ever managed to bring their products to the market? Without the interlinking between universities and businesses, who all answer to banks?
That is to say, banking, entrenched as it is, is not going anywhere no matter how much cryptocurrency enthusiasts would make it so, as the ultimate expression of freedom through private, decentralized money. In times of crisis, central banks have shown themselves as the only sovereign actors on the stage.
Layered Transformation to TechFin
Digital technology, and blockchain specifically, have made people realize that there is no longer any physical barrier to the flow of money. More importantly, that such a barrier shouldn’t exist in the first place. All that stands in the way of sending money as easily as sending messages over the internet are regulatory constructs and legacy resistance.
This is how we should view the modern financial ecosystem. As a push-and-pull ecosystem between the following players:
- Banks as the rulers of the domain but stagnant and entrenched in their ways, due to the power they hold as system administrators.
- FinTech entrepreneurs who understand that digital technology created a space for a new financial market, one in which peoples’ demands can be met before they even knew they had such demands. PayPal is the perfect example of this, as a vanguard of the FinTech industry.
- TechFin companies as purveyors of technology to all interested parties.
To exist and function as viable entities, FinTech players always have to attach themselves to the banking infrastructure, as a layer that is more conducive and flexible to customers’ demands than banks. FinTech players act like seekers of the gaps left untouched by certain parts of the traditional banking system.
However, TechFin is where the real new power lies. We have already reported on the massive amount of ventures Google is involved with. Alongside other tech giants like Microsoft and Facebook, these companies may offer their financial products as neutral services to the banking infrastructure, but they don’t need banks to be more powerful. After all, they have something that is more valuable in the digital age – user data.
As they gather an unfathomable quantity of data on user preferences and behaviors, who would best serve the customers in the payments arena: banks or TechFin companies? Clearly, a time is coming in which banks would have to take a subservient role as a petitioner for that access, while still administrating the money system.
The COVID-19 crisis may just prove to be the tipping point in which people’s activities will converge into the welcoming embrace of Big Tech as the new TechFin decision-makers.
Do you find it strange that antitrust activities against Big Tech have been so feeble, in stark contrast to their power to exert control of the public space? Let us know in the comments below.