Blockchain technology was born out of the long-standing need for change. Globalization, the growth of e-commerce, and an increase in cross-border sales drive demand for faster and safer transactions. IT visionaries see crypto as a way to disrupt the payment industry.
In today’s reality, though, pioneer fintech companies are dependent on the legacy ecosystem. Working at the junction of crypto and classical finance, we have to follow our old-school financial partners’ decisions.
This includes abiding by their rules and complying with their policies. More often than not, they don’t keep up with the innovation, slowing down the digital transformation.
What is stalling the innovation?
First, there are mental barriers. These include a desire to keep the status quo, a wish to see others test the waters first, or a lack of understanding. There’s also the question of different appetites. In traditional finance, it’s common to take a few days to clear a payment that a decentralized network can complete in seconds.
The second reason is unclear policies on dealing with crypto. Even when regulators are ready to introduce new regulations, large companies may take their time to update AML procedures.
All the above leads to a certain hesitation regarding cryptocurrency transactions, even from the most crypto-friendly institutions.
Thirdly, the current financial system took decades to evolve, while new technologies were often added as a superstructure. The result is a behemoth of a system that lacks agility.
Though its modernization is long overdue, it will take some time and costs to set up the new processes. This can only happen after the mental transformation is fully complete.
However, today demand alone has the power to drive the change. As individuals and businesses wish to diversify their assets and invest in digital currencies, the need for crypto payment solutions is growing. The change starts where it is easiest. This is with payment providers and neobanks whose regulations slightly differ from traditional institutions.
Increasing crypto adoption
This March, PayPal let its US users make purchases in crypto. According to the company, bitcoin (BTC), ethereum (ETH), litecoin (LTC), and bitcoin cash (BCH) will be instantly converted into dollars upon checkout.
Also, with no additional fee. MasterCard, in turn, is planning to enable direct cryptocurrency payments before the end of the year, while Visa will allow the use of USDC on their network.
An increasing number of large banks across the globe are also taking a progressive stance on crypto. According to a survey conducted in 2020, by YouGov in the UK, 44% of financial institutions believe that cryptocurrencies should be considered a legal payment method.
Wall Street banks are developing an increasing interest in digital cryptocurrencies. Goldman Sachs will soon offer bitcoin and other digital currencies to its investors.
Simultaneously, JP Morgan, one of the American “Big Four,” is also preparing to launch the “Cryptocurrency Exposure Basket” of bitcoin proxy stocks. Finally, the big banks are recognizing that not taking action is becoming a bigger risk.
Now many are wondering, will that trend continue?
I believe that top players’ adoption of crypto opens the way for daily transactions in digital currencies. In addition, other companies are likely to follow in their wake.
Soon more traditional institutions will realize that taking steps towards adopting crypto, ensuring compliance, and educating their personnel will give them a competitive edge. It’s also likely that crypto-friendly payment providers and neobanks will be getting increased attention.
As far as the regulations go, I expect that the implementation of the Regulation of Markets in Crypto-Assets (MICA) will greenlight crypto adoption in Europe.
In the next two to three years, fintech innovations will significantly impact customer processes such as know-your-customer (KYC) and AML procedures, Source of Funds (SoF) documents checks, and digital authentication.
As soon as all the procedures are in place, classic banks will be able to treat any crypto-related business the same as any other client.
In this way, slowly but steadily, the crypto industry is bringing change to mainstream finance. When it fully adapts to the new reality, the whole industry will take a qualitative leap. Then we can finally use the benefits of cryptocurrencies to the full.