When the World Wide Web was born, it was an incredible development with immense power to change the world as we knew it, even though we were limited by 56k dial-up connections that meant even simple text-based pages could take several minutes to load.
Right now, fintech is like this early internet, while the banking sector is the dial-up connections that both enable and constrain its development and applications. The main difference is that some of the most impactful fintech developments can be implemented entirely without traditional banks.
Digital currencies and the impact they can have on the public sector are strong examples.
There is a perception that digital currencies are a tool of criminals and terrorists. This view is widely propagated in banking circles where there is real concern that digital currencies threaten to make traditional banking services obsolete. Like all the best deceptions, this characterisation is based on a few grains of truth. Of course, criminals and terrorists do use digital currencies, but that’s not the point. They also use smartphones, but no one is arguing against them. And like smartphones, digital currencies provide law enforcement and counter-terrorism agencies with new tools to track, trace and convict.
Setting aside these misconceptions, digital currencies have the potential to do immense good in the world. But while major companies are embracing them, the same cannot be said for governments and the wider public sector.
We see a perfect example of this in the controversial cuts to foreign aid that the UK government recently pushed through. We know that the government needs to start pulling back on spending after the huge financial impact of the COVID-19 pandemic, but wouldn’t it have been better if the savings needed could have been achieved without the humanitarian impact caused by simply reducing the aid budget?
In fact, the government did have that option.
Long before Facebook dreamed up its digital currency, a UK firm had created a safe and regulated digital currency, BiPS. An expert delegation to the government met with officials from the now-disbanded Department for International Development and showed them exactly how a digital currency like BiPS could be used to eliminate fraud, theft and excessive transaction costs. Better results could be delivered for the people who needed the aid, and the savings would run to billions of pounds per year.
In other words, the UK could have restructured its aid programme to give greater impact for the communities it helps while at the same time saving the Treasury significant sums. More than that, by using digital currency in this way, the UK would have immediately become a genuine world leader in the delivery of foreign aid, potentially multiplying the benefits many times as other developed countries followed suit.
And the benefits are far from limited to the delivery of foreign aid. Using a digital currency like BiPS could also eliminate benefit fraud, establish local currencies that keep more money circulating in local economies, drive community investments in social or environmental projects and almost entirely wipe out the high cost of moving money around.
The reasons for government reluctance to embrace digital currencies are unclear. Perhaps ministers don’t understand the full potential of the technology, or perhaps it’s simply politics and the influence of lobbying.
Regardless of the reasons, tides of change can’t be held back forever. From climate change and child poverty to pandemic management, the world is facing greater challenges than ever before and digital currencies and hundreds of other fintech developments are powerful weapons we can’t afford to ignore.
Many countries have embraced these technologies so enthusiastically they have not just overtaken the UK but have left us so far behind that our infrastructure is at real risk of slipping from a Champions League contender to the relegation zone of League 2.
Fintech initiatives like digital currencies provide transformational opportunities that will undoubtedly change the financial landscape dramatically. Banks that resist the change and concentrate on “fighting the threat” to traditional practices will become obsolete. Only those that embrace the technology may survive and even thrive. So far, most seem to be sitting on the fence and trying to do both.
What’s really needed is for government to finally consider the benefits offered by fintech and how it can protect public money and change citizens’ lives for the better.
by Richard Hallewell, CEO, CIPFA CPRAS Technology Procurement Association