Want to stay ahead of the game in fintech? Then kick-start your week with Foco’s ‘Fintech TempCheck’ – your insight into what’s on the minds of the sector’s top thinkers.
The format is simple: every fortnight we’ll pick one theme and ask one question. That’s it. This week’s theme is Cryptocurrency.
Our question is:
"Lloyds Bank recently announced that they’re dumping bitcoin yet some airlines have decided to use it? Is this the end of cryptocurrency?"
Victor Cruz, MD of FinTech Talents
One of the key issues around cryptocurrency is the lack of certainty when it comes to the regulatory frameworks. Banks (and other financial institutions) operate in a highly regulated space and have been caught out and hit with increasingly large fines in recent years. It is no wonder that they are a bit risk averse when it comes to cryptocurrency and, in particular, the association between bitcoin and some unsavoury transactions. I think that regulation in this space will evolve over time and deal with some of the key issues in relation to KYC (Know Your Customer) and AML (Anti-Money Laundering) concerns.
I think the case with Lloyds is actually a bit more straight forward as the ICO (Initial Coin Offering) craze has really driven up the value of cryptocurrencies and they are clearly concerned about consumers running up huge credit card debts in an attempt to get in on the rush. If the value drops significantly and suddenly they could be faced with a large number of consumers who are unable to service that debt; not an ideal outcome. This again points to the lack of clarity around regulatory frameworks and the treatment of ICOs as assets. There is a tricky balance to be struck between allowing consumers to do what they want with their money and protecting them from poor financial decision making and investing in the absence of advice or potential fraud.
Accepting bitcoin (or another cryptocurrency) as a payment mechanism (as many retailers do) is a very different issue than the difficult question of how best to protect consumers without stifling innovation and remaining compliant. That conversation will continue to evolve but I certainly don’t think this is the end of cryptocurrency. This is an immature market and, particularly in the case of ICOs where regulation and consumer protection frameworks are still very much a work in progress.
(Connect with Victor on Twitter @CruzFintech)
Jamie McNaught, CEO of Solidi
What I read from Lloyds (and others) banning the use of their credit cards for purchasing cryptocurrency along with central banks and large investment banks sounding off in various guises is the incumbents beginning to get very concerned about cryptocurrencies.
This treatment by the large banks is neither new or unusual. You only need to look at the bank's resilience and attempts to derail Open Banking in the UK along with the difficulties UK fintechs have with establishing and maintaining a decent banking relationship to understand just how self serving and anti competitive the UK banking industry really is.
The genius of cryptocurrencies is that at their core they don't need the banks. The banks know this and they are terrified. Companies, such as airlines, are looking for viable alternatives to the existing uncompetitive global banking system and crypto is there to take the business.
Cryptocurrencies are not dead - far from it - they are in their infancy and the next decade they will grow far beyond what the existing banking system provides.
(Connect with Jamie on Twitter @solidifx)
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