By Igor Pejic, author of Blockchain Babel

The craze about data giants is at an all-time high. Hardly any discussion about business can do without at least mentioning them. Whether it is Facebook’s latest data privacy policy or Apple’s stock price – the public is insatiable for news about the seemingly omnipotent giants from Silicon Valley. All the more surprising that they are mostly ignored when talking about another hyped topic: the blockchain. Blockchain is a type of distributed ledger technology that enables cryptocurrencies such as Bitcoin. In its more recent applications it also powers tamper-proof transactions with fiat money or records the authenticity and movement of goods. Thus, financial institutions and fintechs alike have flocked to the technology searching for the killer application. But while many see the agile startups as the main challengers to incumbents, there are strong signs that banks’ profits might be trimmed by another group: data giants.

Payments are on tech titans’ agendas

Tech giants have revolutionized one industry after the other – from bigger ones such as retailing to smaller ones such as cartography. Finance, the industry that lubricates all others, might be the largest target yet. But tech giants are not giving in to the illusion that they could replace banks or all financial institutions. They have been focusing on payments. Being worth 249bn USD in the US alone, the payments value chain is a massive target. And it is the most frequent touchpoint consumers have with finance. Above all, facilitating the movement of money does not require a banking license. As long as data giants don’t take custody of users’ money, they don’t have to deal with heavy rules and regulation about things such as capital requirements.

Amazon is capturing the payments interface of competing retailers by allowing customers to login via their mask. With Gmail you can attach and send money to an e-mail just like a PDF. Facebook is looking into the possibility of sending money via its Messenger app. And Apple has been investing heavily into its mobile wallet. The goal seems set.

At the same time Amazon and Google are relentlessly working to become major blockchain platforms. The cloud-based applications cover a host of areas and feed the companies with invaluable know-how. It is the next logical step to wed that blockchain expertise with the nascent payment functionalities.

Blockchain alters the skills needed

Looking at the history of innovation, two things can be observed: First, most innovation is done by incumbents themselves and does not lead to disruption. Second, when innovation does lead to disruption it is usually not triggered by a brainy entrepreneur with a brilliant idea, but by another industry’s incumbent. Companies such as Dell or Amazon are the exception rather than the rule. Apple, for example, was already an established player in the computer business before it upended the mobile phone market. With the rise of a new technology, new competencies become important. In the case of blockchain, it means data behemoths might profit from their massive cloud datacenters, unmatched armies of coders, and the lack of legacy infrastructure. Their global brands and ubiquitous access to customers allow them to profit from network effects quickly.

The proof-of-concept is done China

Now enter China. The three internet behemoths Baidu (search engine), Alibaba (e-commerce), and Tencent (social network) are dominating payments. UnionPay is the only traditional alternative to the three giants. China’s payment infrastructure is not comparable to that of the US or Europe, but it shows that moving money must not be the prerogative of processors and banks. And it shows that tech titans are increasingly behaving like banks in their blockchain strategies.

China and its corporations have taken a hard stance against cryptocurrencies, but at the same time they have embraced blockchain. Baidu, Alibaba, and Tencent are rapidly collecting blockchain-experience with applications such as games or the tracking of pharmaceuticals. Alibaba is the world’s leader in blockchain patents. And they have been more outspoken about blockchain-based payments than their Western counterparts. Last Year Ant Financial started to experiment with the technology to enable Hong Kong’s Filipino population to send money home. Baidu issued a $ 60m asset-backed security on the blockchain and invested $ 60m in Circle, a blockchain payment startup. In Europe such remittance trials or blockchain asset-issuing have been typical for big banks, not IT companies.

Silicon Valley will meet much tougher resistance in transforming payments than its Chinese counterparts, but incumbents must realize the looming competitors and protect their customers by doing more than smoothing processes. Whether they get offerings and business models right will decide how vulnerable they will be.

Igor Pejic is the author of new book Blockchain Babel, published by Kogan Page on 3rd March 2019, priced £14.99.


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