This is a Short Note.
Yesterday, I wrote that ICT anchored the competitive evolution of Nigeria’s new generation banks, by unleashing productivity in the sector. I made a case that Internet, through its unbounded distribution, will destroy some of the banks, if they fail to adapt.
While ICT provided unprecedented productivity in the Nigerian banking sector, Internet is seriously “destroying” value. This is a “problem”. ICT made them, Internet could destroy some of them. Internet is bringing the construct of creative destruction in the Nigerian banking sector where values are destroyed and new opportunities unlocked. But those new opportunities are not going to be, exclusively, within the controls of the banks.
What Internet is doing today is expanding distribution of banking services thereby putting pressure on banks to control pricing on their own terms. Before Internet, they could charge huge fees to transfer money for clients to foreign accounts via their treasury departments, but today, with internet, there are options. The customers could simply use their debit and credit cards to settle the bills without first spending money on bank fees.
What Internet is doing to banking, it is doing in other sectors. I noted the redesign in the airline, entertainment and other industrial sectors. Internet is commoditizing many elements of commerce.
Now, I make a case that for some financial services, we may not even have a need to have firms. In other words, if Internet can link supply and demand efficiently, the core essence of firms will collapse. Companies exist to handle the friction which exists between supply and demand, as noted in the refereed piece above.
The essence of firms is to make sure that demand and supply have lesser friction. If you can use internet to remove that friction between demand and supply ( i.e. they can come together, with ease), you do not need firms. For example, if a saver can efficiently find a borrower, there is no need, partly, to go to a bank to put money to earn interest. If Internet attacks that, the heartbeat of most business sectors will be damaged.
Why Internet Will Destroy Fintech
At maturity level, Internet could enable seamless linkages between sellers and buyers in many industries: the implication is that many companies will disappear. Who needs an accountant when all transactions are powered by blockchain? Many areas we see in fintech (financial technology firms) will disappear; some include:
- Remittance: As internet matures and the core elements developed, the world will have one “currency” and the elements of remittance will not be needed. Besides, the transfer of funds, if necessary, can be done without fintech in the midst. We already have companies doing remittance for free between U.S. and Europe. In future, that will not be a service because technology will make Internet to get all nations and their currencies to converge.
- Payment: In a blockchain, no one will need a bank or fintech to facilitate payment. The buyer and seller can exchange blockchain transactions to effect deals. It is going to be an advanced mPesa where buyer pays seller through the mobile number, except that mPesa is not owned by any corporate entity
- Lending: With most frictions gone, lenders will lend to borrowers and all contracts sealed in the open general ledger of blockchain. The need for fintechs and banks will be limited.
As I noted in the piece, anyone that thinks that because it is a fintech, that the wave will flow in its direction could be wrong. Internet will redesign and even destroy the companies it had made possible. Internet is making today’s fintech possible and it may not spare them. When consumers have unbounded access through unlimited distribution channels to immense product supplies, made possible by Internet, business will be totally different from the way we see it today.
As the distribution happens, IT utilities like Google, Amazon, and Facebook will be the clear winners. They will continue to tax advertisers or partners for access to web users who will see the world through their lenses. And with limited efforts they will make that linkage between buyer and seller easier displacing other entities. If you live in the Amazon universe and your neighbor does, you can shop for more than 80% of your life needs. Who needs a currency, when Amazon currency will suffice? Extend that to the top 10 digital firms, you will have a different world. They can lock the ecosystems making it extremely hard for any other firm to participate. They can take us to that friction-less commerce, except now the digital universe is within their domains.
All together, prepare for an unconstrained future. Fintech cannot be talking of disruption because they are also vulnerable, if the very pillars of Internet remains: unbounded distribution and commodification of value. The services would be endangered if blockchain becomes the pillars of modern digital economy.