Financial services companies are slow to adapt to new realities. They will say it is because of challenges with legacy technology and linking various systems together, which is true.
But there is another reason why those firms do not change and it is because they see no reason to. They have dominant market position and are making billions, so what is the problem?
Nothing lasts forever. Innovation is changing the financial services delivery system, and while the big players’ heft gives them somewhat of a buffer against change, it’s not enough to completely insulate them from the changes already underway.
One of those companies working to change the financial services landscape is MOVO, a digital cash network providing users with more control over their money by allowing them to limit who accesses their accounts, when they access them, and how much they can take out. CEO Eric Solis has taken more than 20 years of fintech experience and has created a unique company which delivers a service that makes you wonder why someone hadn’t thought of it before.
The first CEO to launch a financial system with a complete digital signature, Mr. Solis’ early fintech years were in micro investing before he applied his experience to payments.
And there was plenty of carryover, Mr. Solis said
“Each link of the chain was in its own silo,” he explained. “The latency for many to get from one point to another was just riddled with friction.”
Mr. Solis set out to deliver a level of digitization to cash networks that he delivered to digital signatures and in 2018 received a patent for the novel aspects of MOVO Cash’s technology.
Most financial services companies enter the digital era with standards designed for the payment card industry (PCI) and that places them a step behind. Add in the increase in digital commerce brought on by the COVID-19 pandemic and it highlights their struggles all the more.
PCI standards are woefully lacking in their ability to protect users from the level of sophisticated fraud now commonplace, Mr. Solis said. While providers rake in billions (hence their allegiance to the status quo), consumers, merchants and government are losing billions because of their financial institution’s unsophisticated defences.
Those defences have been laid bare during the pandemic. As governments rushed to transmit $3 trillion of stimulus, criminals lined up to get their share. It could take a decade or more to determine how much was stolen but Mr. Solis said he wouldn’t be surprised if it was $1 trillion or more.
“Nobody knew who they were giving money to,” Mr. Solis said. “In the world 10 years ago you could have done what they did you can’t do that in today’s world. The technology is too smart and nobody knows who’s who anymore.”
Still the incumbents don’t want to adjust, in part because they would have to cede control over key points in the current deliver system, Mr. Solis said. As he grows MOVO Cash, he has discussions with the biggest names in the space. He describes the technology in part as “hijacking” their network at key points.
“That makes them really uncomfortable and very mad,” Mr. Solis said.
Mr. Solis prefers the open source approach to digitizing finance, where pioneers work to produce a digital finance ecosystem whose overall health is more important than any one firm’s bottom line. First create a thriving system then let the strongest survive.
“Here’s our patents – go build on them,” Mr. Solis said. “To create digital cash is bigger than any company. They don’t want to believe this. They want to believe they own the world.”
And in that ignorance lies opportunity for MOVO Cash, Mr. Solis believes. They turn the 16-digit number on a bank card into the one on a dollar bill by allowing the user to dictate how much money each recipient gets and when they get it.
Think of a recurring bill that comes out of your account every month. You provide the authorization and each month that 50 bucks comes out on the 14th. Now imagine you forget about the payment and long after you stop needing the service you realize you’ve lost good money.
Those providers also keep your account information in file, making it vulnerable to hacking, so even if you never shop at the big red department store any more, your information is at risk for as long as it lies in their system or you change it.
“Nobody wants to tell you this, but you cannot protect who you are anymore,” Mr. Solis said. “The bottom line is nobody knows who’s who anymore (online).”
A better idea is to dictate up front how much money comes out, when it comes out and for how long it comes out. Once the date passes, so does the withdrawal capability and the accuracy of the data, which is tied to a single-use number. Only the amount of money you place in the gateway can be used.
It beats waiting for a card to come in seven to 10 days, and with the average mobile phone having more than enough computing power, the capability is there to provide instantaneous service – on the customer’s terms.
“Why don’t banks do this? Because they don’t want you to have control over those numbers,” Mr. Solis said.
It is said to never waste a crisis, so I asked Mr. Solis what lessons we should take from the past few months as we look to strengthen the financial services delivery system.
Challenge assumptions. Question authority. Don’t blindly accept common wisdom.
Increased digitization will play a key role as more people around the world do not have the fixed address that is crucial for accessing basic financial services, Mr. Solis said. We’re not talking credit, but simple digital cash services. Barred from even those services, some two billion people will struggle do develop a financial history which helps with identity verification.
If your residence or even your name changes, a blockchain-based system can track your financial history on an immutable chain so your records stay the same even if your life does not. As every new token gets added to the chain it becomes harder to steal your identity.
The technology is clearly there, the only thing missing is the will in key places.
“The status quo is making the problem bigger, not smaller,” Mr. Solis said.