BANKING: OVERVIEW

A bank is a body responsible for accepting and storing valuables, money, as well as providing loans or financial assistance for people, companies and institutions that need it, having satisfied the defined requirements. Prior to the advent of banking, trade by batter was the in-vogue practice, however, giving its comparative advantages—particularly institutional banking, structure and benefits, banking has been hailed as a more effective means of exchange.

The process of institutional banking has been traced back to medieval Italy in the 15th century—Banca Monte dei Paschi di Siena was established in 1472 in Siena—which has equally transcended to modern day banking. Nevertheless, the process of money changing hands from one person to the other is as old as the creation of money itself.

The three common types of banks are:

  • The Central Bank: Every nation has a Central Bank, and they are responsible for the monetary policies of their nation;
  • Investment Banks: These are banks that provides financial services to large corporations like multinationals and also financial institutions that are into commercial banking;
  • Commercial banks: A very common type of bank, and their primary focus is to provide financial services to the public in areas like issuing cheques, savings and withdrawals of its customer’s money on the customers’ behalf, and issuing credit cards to customers, among other things.

Everyday banking is based on Interbank relationship and operating processing in which the central bank plays the quintessential role of the referee to ensure a smooth operating process, but this is challenged by certain factors which includes, but not limited to, the costly maintenance of networks that facilitates payment and its time-consuming nature in a fast-paced world that is driven by technology. In the case of foreign exchange, the big challenge is in managing the liquidity in the exchange of currency, and since there is a vacuum—the absence of a central bank to help plug the hole—the introduction of a new system that is based on cryptocurrency that is used to promote the need for a global currency.

The New Age:

Presently, the global money market is under a lot of pressure in three major areas, which are: the lack of certainty in regulation of financial houses and transactions; a downward slope of interest rate; and the digitization of modern technology. According to a report by McKinsey & Co, some countries feel the need to be concerned as market predictions predict the disappearance of roughly $100 billion, as a result of the impact of digital disruption in which blockchains and cryptocurrency will play a major role. This gives credence to world billionaire and owner of Microsoft Corporation, Bill Gates’ statement as far back as early 1994, when he emphasized the need for financial education which still places importance on the essentiality of banking but without the financial houses.

“Banking is necessary but banks are not” - Bill Gates

LACK OF GROWTH IN BY BANK’S IT POLICY

The world is changing towards a digital age, and for traditional banks to remain relevant, they have to become ‘Digital’. Digital banking is an IT issue, and as such, banks must create platforms that will facilitate the creation and provision of comprehensive information on its customers, however, previous situations and the extant state of affairs are yet to establish whether the banks as institutions are ready to step up their game.

Observations and reports have shown that most banks, in the past two decades, have spent a larger percentage of their IT budget on servicing its existing IT base, they tend not to plan for the long-term vision. Perhaps, this can be ascribed to the legacy that has been entrenched in their operations, and in such a way that validates the idiom “a leopard doesn’t change its spot”. Bank executives tend to want to cut corners in spending and often are prone to outsourcing the roles. With a view of state-of-the-art IT facilities being costly to implement—particularly in the short-term view—the executives tend to be dissuaded, and the upshot of this is the failure to meet up with the expectations of their customers. In as much as banks have taken measures to tackle this area by outsourcing its IT services and investing its digital services to bringing out new internet solutions, this may just be seen as papering over the cracks as other competitors are stepping up their game by creating a better working relationship with clienteles, which is often fascinating to the customers and spur them to return for more experiences.

PEOPLE’S DISLIKE FOR BANKS

Banks have been rated as one of the institutions hated by people. In fact, in Harris Poll’s Annual Corporation Reputation survey, the banking sector was ranked the least. It was discovered that the people’s dislike for bank tend to be from the perception that most banks, as big corporations, often away with basic financial improprieties, coupled with their ability to make the public pay for their excesses anytime they fail. Despite the inconveniences they bring upon the populace, their poor customer service is another contributory factor that is earned banks the unenvious position and reputation.

However, equally from the Harris Poll, the data gathered—and from the industrial breakdown—showed that technological firms occupied the topmost position of most loved firms. The reason can be alluded to the fact that tech companies tend to create a better relationship with consumers. This will further be weighty for banks; due recent developments have portrayed the inclination of the technological firms to replace banks in providing services and products to customers.

BANKS LACK OF INNOVATION ON MODERNIZATION

For banks to overcome all the above obstacles, a major transformation has to take place, which will include a major overhaul of its business model, especially as it deals with its view on technology, and must be implemented into the vision and values of the bank. The introduction of a wide range of services and products by tech companies has helped these companies create positive relationship with consumers.

The services and products they provide will be gradually replaced by large tech companies who have better relationships with consumers! - Andy O'Sullivan

The 2008 great depression increased the hatred for banks, and despite regulations to prevent such re-occurrence, tech companies have offered a seamless customer friendly experience which is challenging traditional banking and has led to a paradigm shift in the balance of power from wall street bankers to the eagle-eyed vision of Silicon Valley executives who have learnt the art of keeping the consumers wanting more and more of its service experience, and invariably earning their trust.

A recent report by Accenture found that banks stand the possibility of losing at least one-third of their market share before the end of 2020. The report surmised that customer service experience will be the major factor in payment, and a good example of this is espoused by Starbucks. According to the report, Starbucks has a reported over $2.5 billion in sales, thanks to its effective campaign of rewarding customer loyalty.

BLOCKCHAIN: A CLOSER PERSPECTIVE

Blockchain was introduced in October 2008 as a proposal to bitcoin, which is a virtual currency of ownership and transferring of currency.

The importance of blockchain can be ascribed to its ability of recording transactions between two parties in a verified manner, and these transactions are performed digitally and automatically, with ease of conducting business and communicating with each other. To add to this, it also does not involve the use of middlemen, who are known to increase the costs of transaction and slow down the process. Hence, their absence help ensures the easiness and smoothness transactions.

With blockchain, we can imagine a world in which contracts are embedded in digital code and stored in transparent, shared databases, where they are protected from deletion, tampering, and revision - Harvard Business Review

BASIC KNOWLEDGE OF FOUNDATION TECHNOLOGY

Blockchain, as a foundational technology, has created new avenues for various systems, in terms of social and economic interest, and while its integration is gradual and involves a step by step process, it is quite different from the hockey stick approach. The technology is still faced with some militating factors that include political undertone, technological infrastructure, organizational deficiencies and imperfection, as well as governance issues. Despite the aforementioned, the effect of blockchain will be ground breaking and its effect is still on its road towards a huge transformation. In evaluating the norms of the effective mode of this foundational technology—the Internet—that we are becoming accustomed to, it is imperative to draw up a four-phased framework, which are:

  • Particularity: This is first division of the four-phased framework. It involves a simple application that requires little expertise, yet completely cost-effective application, and offer a precise solution.
  • Focal: The second division is about models that are quite original while needing just a small population to get instant benefit as it creates a comfortable acceptance.
  • Replacement: The third categorization dwells on applications whose functions are somewhat lacking in innovation given the fact that they are built on previous applications, nevertheless with significant coordination that emanates by the virtue of being a much-wider utilized application.
  • Conversion: The last part describes the distinct application with enormous and impactful consequences, if proven to successful. This kind of applications, following their successful launch are capable of directing actions of major players and institutions, invariably causing a social, political and legal evolvement.

At present, the most change in cryptocurrency is ‘smart contracts’, this provides automatic payment solutions when transfer is being made. A few experiments tend to prove that the vision is heading in the right direction.

CONCEPT AND POLICY OF XRAPID, XRP AND RIPPLE VISION

For banks that intend to lower their cost of liquidity yet maintain a maximum customer satisfaction, xRapid is the payment solution. This is due to the fact that new market competitors need a ready-made exchange in an ever-increasing cost of liquidity, and as such, xRapid vividly reduces principal requirement for liquidity. The outlook of foundation technologies predicts that the integration of XRP and xRapid will be gradual, incremental and steady.

Early targets will be inefficient, but fairly high volume, corridor. For example, EUR->INR - Ripple

THE NEED FOR BANKS TO PARTNER WITH XRAPID

Pessimist tend to downplay the importance of XRP by sharing a myopic thought that finance houses may not embrace XRP. This just falls under the category of the greatest FAILED tech predictions of all time, which also includes Thomas Watson’s prediction about no viable market for computers in the 80s:

I think there is a world market for maybe five computers - Thomas Watson, Chairman and CEO of IBM

while Balmer also predicted doom for iPhone products due to the nonexistent keypads.

I said that is the most expensive phone in the world, And it doesn’t appeal to business customers because it doesn’t have a keyboard. Which makes it not a very good email machine - Steve Balmer, former CEO of Microsoft

The vision is aimed at creating an avenue to improve the visibility of Ripplenet as a force to reckon thereby paving the way for liquidity of XRP particularly in targeted areas and sectors. This is a plausible outlook especially as it performs more payment solutions that occur with relative ease instead of previous ways. Chief cryptographer at Ripple, David Schwartz, emphasized that transactions will ease through XRP as it works across those channels.

As RippleNet grows, there will be more and more payments that have no technical obstacles to being settled by XRP instead of the slow, old way. Then as we make XRP work for those corridors those payments can easily settle through XRP - David Schwartz

REASONS FOR BANKS TO CONSIDER XRP

The ease of deploying and using xRapid platform makes it a viable platform for banks. Secondly, the 30% bonus on transfer fees to be enjoyed by the banks is an economic benefit that banks will find alluring. Also, a bank that engages in the usage of ripplenet and XRP is afforded the luxury of doing away with correspondent banks settlement, as well as having nostro/vostro accounts. Instead, transaction is completed without much ado.

If you use RippleNet and XRP together, you not only get the RippleNet benefits but you also avoid the need to settle through correspondent banks or maintain nostro/vostro accounts. This is a big deal because this is where much of the cost of payments comes from - David Schwartz

AIMING AT AMAZON?!

Recently, XRP has been tested by Currencies Direct, which completed an international transfer over the platform. The success of the transaction prompted the Chief Product Officer of Currencies Direct to proclaim that “the experiment remained a categorical success.” He further stated that there is a clear indication of XRP playing a major role in payment option, subsequently refining amenities to customers....

In most cases, beyond online retailers and some ephemeral outlets, cryptocurrency is not a popular payment method. This is not surprising, given the implication for large establishments in the sector, like Amazon. The implementation would pose a substantial challenge to the retailer. Although the prevarication through future market is feasible, this, however will create extra costing for the contract price, thereby propelling the already increasing price of bitcoin. Besides, the issues bordering ease and swiftness of completing deals is also present. Presently, the Bitcoin completes a mere transaction of only seven each second, while the Ethereum is at about 12. Meanwhile, Amazon was hitting 600 deals per seconds, at the zenith of its operations. It is evident that the adoption of blockchain is a recipe for enormous waiting lines and, by extension, disappointed clienteles, even if only a small proportion of them engage this method of payment.

Unlike the Bitcoin and Ethereum, the Ripple is a far-better option, thanks to its capability of handling more than 1500 transactions per second. This is twice more than what Amazon needs to process at its peak of operations, and this feature has cleared the doubts of “if the technology will be accepted” an necessitated the extant disposition of experts, which is more concerned about asking questions of when the top retailers are going totally adopt and implement the platform.