Chris Skinner, financial analyst and the best-selling author of “Digital Bank” shared his opinion, which led us to a new financial world.
The Global Financial Crisis
Since September 14, 2014, the global banking system has changed forever. These days not only Lehman collapsed — Washington Mutual was absorbed by JPMorgan Chase, the Royal Bank of Scotland could not resist, and many others struggled to stay afloat. As a result of the crisis, the regulation of the banking system has become much tougher, and capital requirements have increased more than ever before.
In addition, there was a tightening of loans and opening of credit lines, and many credit cards were defaulted – within two years after the crisis, American banks wrote off over $ 100 billion of credit card debt. It is interesting that today the use of credit cards has returned to the pre-crisis level. Are we waiting for the new 2008 in the near future?
The Growth of Mobile Social
In the early 2010s, most people have not yet used social networks, at best they have heard something about them. The idea of the smartphone was also a novelty, the first Apple iPhone was released only in 2007, and many doubted that phone without a keyboard could be successful.
But the manufacturers of the phones of the previous generation overlooked that the iPhone is not a phone, but a pocket computer. In combination with social networks, this has given an explosive growth in the user base, and today we live in a world where people speak little on their phones and look at their screens much more.
In addition, the mobile revolution has led to large-scale changes in the field of payment services: today, any bank offers mobile banking services, and a mobile phone has become the main channel of communication with the client.
The Application Revolution
Payment solutions have become the most important applications on smartphones, mobile wallets work in almost all countries, from America to Africa. The leaders of the Chinese market, Alipay and WeChat Pay applications, over the past year conducted transactions worth 15 trillion dollars.
The union of payment services and mobile applications has changed everything: a phone has become a cash register, and in the case of Square in the USA and iZettle in Europe it is quite literally. According to the forecast of Global Market Insights Inc, in 2024, mobile phones will process payments of more than 55 trillion dollars.
The Emergence of Fintech
Ten years ago there was no Fintech as a major phenomenon — there were only a few companies that planned to work with finances on the Internet. Today, thousands of companies are engaged in this topic, and each of them specializes in its own way – for example, Stripe, Klarna and Adyen. They do not try to grasp the immeasurable, but rather they each concentrate on one narrow area and write software to solve the chosen problem.
We have already seen the emergence of powerful brands in this field, including unicorns, some of which began in the early 2000s, and today their capitalization exceeds $ 1 billion, for example, SoFi, Kabbage and Robinhood. These companies, dominating in their fields, have grown from scratch, and many of them operate globally. Some of them are beginning to merge, like TransferWise and Wirecard, and the output will be regional or world market leaders.
Pan-European movement — and a laggard
Europe was working toward adopting a single currency in 2008, with regulations for the euro driving changes across all aspects of finance. One was the first iteration of the Payment Services Directive, bringing with it efforts to harmonize all of the payments products used in 28 nations. To make this happen, the banks were working co-operatively through the Euro Banking Association (EBA) to build the Single Euro Payments Area (SEPA). This would allow standing orders, direct debits, credit transfers and any form of payment to move across Europe’s countries as though they were domestic payments.
Meanwhile, over in the United States, a different type of herculean effort was unfolding — the move from magnetic stripes to EMV. Ten years after the UK, the United States finally fully mandated chip-and-PIN cards. Much like the Eurozone, it experienced growing pains with getting all players on the same page. Even today, fractures remain, with some merchants opting to take the liability risk associated with mag-stripe cards rather than making the switch to chip.
Satoshi Nakamoto and Bitcoin
Another important point is that in 2008 an unknown (to this day) scientist named Satoshi Nakamoto published an article titled “Bitcoin. Peer-to-peer electronic money system” and proposes a model, which allows participants to transfer funds among themselves without the intermediation of a financial institution. After that, in January 2009, he released the first version of bitcoin.
The Race to Cashless
Mobile wallets, digital currencies, peer-to-peer payments – all this put pressure on the consumer, encouraging him to get rid of cash in his pocket, and in some countries this process has already gone very far, it is expected that Turkey, Sweden and China will completely give up physical money in the next decade.
Of course, it’s convenient for governments: automated payments that go through a single system are much easier to track. There are clear advantages in this for private individuals as well: the risk of robbery or loss of money is lower, there is no contact with bacteria that abound in banknotes and coins, and so on.