By Greg Kidd
Greg Kidd, co-founder and CEO of globalID, postulates a few possible paths for the future exchange society. Who will get us there, and why? Will it be banks? Phone companies? Governments? Fintechs? Will the world be more Big Brother, Mad Max, or creepy Facebook? Or is there another path that is less dystopian and more human? Will we be able to shape the future, or will it roll over us like a huge unstoppable snowball? Greg Kidd will be a speaker at the Future of Finance Summit 2019
An insight on what the future will not be like came to me from a lunch with an outgoing leadership figure at Zelle—the multi-bank consortium that has deployed an app to compete with the likes of Venmo and Square Cash. Zelle is backed by many of the biggest US banks as a conduit for money transfer, but the app is an addition to, rather than a replacement for, the bespoke apps that each of the participating banks has for its own customers. When I asked the departing leadership why Zelle did not include more features, such as transaction history for users, the answer was that the banks wanted the app to be good enough to blunt competition from Venmo and Square, but not so good as to have bank customers give up their existing bank sponsored mobile apps and just rely on Zelle. That observation was a fulfilment of the maxim “if you aim low, you will probably get there.” I immediately understood the desire of the best and brightest to exit the mediocrity mothership.
At the same time, Visa, Mastercard, and American Express are enjoying double digit growth in their card-based purchase volumes to over $6 trillion in 2018 in the US alone. That would sound impressive if not for the fact that two Chinese mobile payments apps—Alipay and WeChat Pay—did seven times that amount, topping $41 trillion for the same period. Of the two, the messaging app WeChat has shown the most impressive growth—over a billion users with 80% making mobile payments on a monthly basis. The future for the world has arrived, but you just don’t see it yet in the US and Europe—most likely because early innovation in the card space now makes the West slow adopters of future solutions that have bypassed cards entirely.
Big tech’s pivot to private messaging and payments
While numerous American and European fintechs are trying to build better wallets—fiat, digital, or crypto—the Chinese (via WeChat) and the Russians (via Telegram) have been busy building better messaging rails that first solved the more general need for a free person-to-person and group messaging system before tackling the movement of money. The Americans are not without a horse in the race as Facebook owns the messaging platform Whatsapp that is extremely popular everywhere but in the US. WhatsApp could also be a contender should Mark Zuckerberg decide to “do it all” through a messaging-first-payments-next platform that takes on all the other bank and fintech alternatives. After being fined and slapped around over privacy and fake news criticism around Facebook's social networking practices, Zuckerberg appears to have recognised the true value of his crown jewel, repositioning WhatsApp to duplicate the success of WeChat in every other country in the world besides China. While some may question whether Mark’s pivot away from social media to private messaging and payments is for real, this author is completely convinced of both his sincerity and temerity to execute. And the opportunity to flip global messaging into global money has not been lost on Telegram brothers and co-founders Pavel and Nokolai Durov either, who raised $1.7 billion in an ICO (initial coin offering) to fund their Tron project and Gram currency buildout.
Contenders to build the future value exchange
But what of other obvious contenders to build the future of value exchange? What of Paypal/Venmo, Coinbase, and Square in the US, Europe-based Revolut, or Kenya-based M-Pesa—not to mention other bank, mobile phone, and even central bank efforts. Or what about the rest of the FAANG crowd (Apple with iMessage, Amazon, Google) or Microsoft (with Skype)—each with huge customer bases, global reach, and valuations in the trillion dollar range. Do not any or all of them have a plan to challenge the status quo and build the digital wallet offering to rule them all? On paper, yes these industries and players should all theoretically have a chance because of their resources, experience, and customer bases. But in practical terms, all of these companies aren’t probably positioned by being late to the party in developing and leveraging the killer app of the 21st century—the humble messaging rails. While Apple’s iMessage and Microsoft’s Skype certainly qualify as global messaging rails, the DNA of those companies haven’t coalesced around building from the messaging core out into the other battlegrounds such as wallets and payments. Only WeChat, Telegram, and now WhatsApp have seen the light and realised that messaging, far from being just another (typically low/no revenue) internet service, is actually the key glue for building the future “rails” for all payments. Messaging works not just for P2P messages, but also C2B, and even B2B.
What SWIFT did as messaging rails between regulated financial institutions, WeChat, Telegram, and WhatsApp have the potential to do for individuals, groups, and businesses. The routing of payment information does not need the overhead of country and bank specific account numbers when the routing destinations are no different than the contact details we all have in our contact lists—essentially overlays of mobile phone numbers. When each profile is synonymous with a digital ledger that can hold any form of value, then everyone who can message (essentially everyone with a mobile phone—which is basically everyone) has a seat at the future financial table. The hurdle that separated the banked from the unbanked is obliterated by the more inclusive standard of asking only who’s connected to the internet via mobile—which is dramatically more inclusive than the status quo of requiring everyone to have a bank account.
Why is crypto an important part of the solution
What is the role of crypto —given that it has not shown itself to be necessarily the most efficient form of transferring digital value? The answer is that crypto is a game changer not because it’s the most efficient (i.e. low cost) alternative to traditional money but rather because it’s the most effective means of bypassing the roadblocks that regulated industries often throw in the way of innovation. While naysayers are quick to cite examples of crypto being used for malicious purposes, the same could be said of any technology that allows nefarious behaviour on the internet. But that is a bathwater-and-baby observation that obscures all the upside of permission-less value creation and exchange. Because crypto can avoid having to ask permission from the established powers-that-be (banks and their regulators), it cannot be easily or universally suppressed. In short, crypto doesn’t have to win to disrupt—it disrupts simply because it forces the status quo to react to the existence of an alternative to the closed loop of traditional value transfer historically controlled by banks, card companies, and money transmitters. No longer does one have to ask permission to innovate, albeit with the geekiness and wild west attributes of crypto.
The new rules brought to bear to attempt to regulate and control crypto also clarify the regulation and rules for something that is both efficient and effective: digital currency that is facilitated but not directly controlled by a bank, card company, or traditional transmitter. This isn’t crypto, but rather PayPal 2.0—an effort to complete the revolution started by PayPal with their email-based identity, but extending it into the realm of phone-based identity. It is this gap that messaging companies like WeChat, Telegram, and Whatsapp are voraciously filling. Regardless of whether the technical construct of value is crypto or fiat, what matters is that the value is digital and so can travel over the same rails that are already efficiently and effectively transmitting billions of text, audio, and video messages a day—and at a cost that is a fraction of what existing payment rails cost to run. Furthermore, messaging systems are built around contact lists, which includes extensive metadata about each contact. This means that the risk and compliance data needed to make the value-transfer system safe and secure is arguably more robust than the check-box controls employed historically by traditional financial institutions. One only has to read Mueller’s Russia indictment to understand just how broken traditional PayPal and Bank KYC/AML (know your customer/anti-money laundering) controls really are.
Addressing the data privacy conundrum
Given the choice between a regularly-used messaging identity, complete with contact list metadata versus the easy-to-phish name, address, date-of-birth, and tax identity details that banks collect to meet their risk and compliance obligations, the former is a slam-dunk winner. The messaging- based payment rails are not only more efficient and effective than traditional bank and card rails, but they are also likely to be more secure and compliant. This can be used to build better financial and payments infrastructure that can be used worldwide.
One might ask, though: what about privacy? While Telegram has taken a strong stance on privacy preservation, neither WeChat nor Facebook are poster children for looking after the privacy interests of their users. Telegram seems Mad Max-style anti-institutional, WeChat acts as an Orwellian conduit for the Chinese government, and Facebook racks up record privacy fines over its invasive, anti-competitive, and downright creepy practices. None of these potential heirs to the throne seem to be particularly well suited to form the foundations of our future exchange society.
But the deficiencies (or excesses) of these heirs is not a permanent nor necessarily disqualifying blocker to their eventual ascendancy. Users have proven themselves amazingly willing to look past deficiencies over privacy and even security when enough free convenience is put on tap. And each of these platforms may adapt to refine and define their niche, finding the balance between regulatory and user expectations while building a successful business model. Even if the overall costs and fees are just a fraction of that enjoyed by traditional banks, card companies, and money transmitters, the huge transaction volumes will generate a healthy income.
A neutral alternative
Still, there is hopefully also a fourth way—by creating an interoperable (rather than silo-based) messaging infrastructure that is as open as the internet itself. Our belief is that, while WeChat, Telegram, and WhatsApp may be superior to other legacy offerings supporting future payments, they are still intermediate steps rather than the final phase of realignment. Just as AOL, Compuserve, and Prodigy were siloed forms of the future of electronic commerce but not the internet itself, so too may WeChat, Telegram, and Whatsapp be siloed pre-internet versions of a fuller and more open standard for supporting exchanges over the internet.
This belief underlies an alternative vision for identity. Instead of having a variety of competing closed and non-interoperable messaging protocols and contact lists, an overall namespace for identity will form the routing backbone for all value exchange in the world. Just as the domain name system provided interconnection between all web sites, thus making the existence of separate AOL, Compuserve, and Prodigy usernames and routing logic redundant, a general global identity namespace could replace the siloed practices of WeChat, Telegram, and Whatsapp to provide a more self-sovereign, mobile, and direct ecosystem. How that neutral namespace could and should operate is the subject of a separate paper. But unless one prefers the Orwellian, Mad Max, or creepy constructs offered by the Chinese, Russian, or Americans, the neutral fourth path is well worth pursuing.
Greg Kidd is co-founder and CEO of globaliD, the neutral and portable identity framework that allows individuals and entities to securely and privately manage all their permissions and money.