Facebook hopes to launch its own virtual currency called Libra. Photo / Getty Images
Facebook hopes to launch its own virtual currency called Libra. Photo / Getty Images
COMMENT:
Digital payments happened because there's a real need for them. Who doesn't want easier and cheaper ways to handle payments, locally and especially overseas ones?
Just about everyone's connected to the internet now. Transactions done conveniently in milliseconds rather than days and weeks is what businesses yearn for.
Nevertheless,sending and receiving payments can still be drawn out and expensive. One nightmare scenario involves being sent a United States cheque, and then depositing it into your New Zealand bank account.
If you think clearing local cheques is slow, try the same with US ones. It can take over a month to clear them and the funds being virtually transmitted to a NZ bank and then your account. Minus hefty fees and terrible exchange rates of course.
There are workarounds including using Canada as an intermediary as that country's banking system is integrated with the US and the international one, and using an internet-based service like Paypal to get your hands on the dough in NZ.
Availing yourself of the services of the grandly named Society for Worldwide Interbank Financial Telecommunication (SWIFT) to transfer funds is faster, but still feels needlessly complicated with peculiar codes to use and forms to fill in. That's before you're gouged by the usual exorbitant fees and low exchange rates offered.
A scenario like the above spells out a market opportunity for digital entrepreneurs. They try to bring obvious improvements like speedier transactions, "virtual" bank accounts worldwide, and save on fees by batching funds transfers; all things that globalised NZ small to medium businesses want.
Banks have recognised that changes are afoot and started to open up to developers, ditto credit card companies.
They're attempting to play both sides of the game, but there's no love lost between traditional banks and big financial institutions. Should they worry that customers will waka jump elsewhere at first opportunity?
Perhaps not. Even business-friendly governments are very keen to make money laundering as hard as possible to deprive criminals and terrorists funding sources.
That means more official scrutiny, tightened and difficult to interpret regulations with massive penalties for those who get it wrong. Know your customers extremely well and keep track of where funds go, or else, is the official message.
Digital payments happened because there's a real need for them. Photo / 123RF
In Australia, government financial watchdogs have cast a dragnet and recently snared layby finance company Afterpay that Trade Me uses, for not being fully compliant with anti-money laundering and counter-terrorism financing laws.
Prior to that, the Australian Transaction Reports and Analysis Centre (AUSTRAC) investigated Commonwealth Bank and found it had breached anti-money laundering laws.
ASB's mothership ended up paying some A$700 million ($736.5m) in fines and its then chief executive Ian Narev had to fall on his sword after AUSTRAC's investigation.
The laws apply to everyone, big and small. Even the minute (by internet standards) virtual world Second Life has to enforce US anti-money laundering laws or face being king hit with massive fines and penalties.
With keen enforcers able to dish out harsh penalties, a financial start up has to put in a huge amount of effort to be fully compliant in every way with AML/CFT laws.
This is doable but we're talking about the internet, where dodgy characters can and will find creative tech and non-tech ways to poke holes in what seem to be water-tight systems.
This has repercussions for fintech innovation as startups and their innovators might decide that the risk of being inadvertently caught out is too great.
We still need payments to evolve and become more efficient, but how can this be done while meeting strict regulations? If you say "easy: put them on the blockchain and use Bitcoin", please go and stand in the virtual corner over there.
Think of who could absorb the risk, experiment with new transaction technology and pay the fines when things go wrong: that'd be the big banks, and Facebook.
A few hundred million in fines for anti-money laundering law breaches is neither here nor there for them, and a big reason why Facebook's Libra virtual currency is very likely to happen.
If regulation ends up cutting off smaller local players by the knees and pave the way for a global "Facebank", we might as well stick with sending cheques and using bank notes.
