Starting From The BackEnd: Innovation Digs Deep

The following extract was taken from an article in Payments Compliance written by John Basquill

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Regulatory and market pressures have pushed innovation away from consumer-focused technology and into lucrative back-end banking solutions, which could ultimately threaten the role of central authorities, experts have said.

Alex Mifsud, chief executive at fintech consultancy Ixaris, feels that although regulators are unlikely to insist financial institutions adopt the technology, they will ultimately realise its potential benefits and support its implementation.

He compared early blockchain to the emergence of the internet, where cyberspace was “a libertarian dream of no laws and no taxes — but that didn’t last very long. The same thing will happen here, and whether the rails will start as grassroots and end up colonised by regulators, or whether they will be set from the top but based on the new technology, we will end up broadly in the same place,”

For Mifsud, that is because the existing international settlement system, involving multiple financial institutions, central banks and the Bank for International Settlements, is essentially a “clunky and expensive” way of moving funds.

He added it would also help in instances where a shortage of liquidity occurs in the financial system, such as during a financial crisis, as only blockchain can ensure settlement between banks automatically continues to occur.

“In payments, the blockchain offers a genuinely better set of rails than the existing ones, for the transfer of actual value,” he added.

“It actually makes it possible to transfer value as part of the transfer of information, and that’s what
makes distributed ledger so promising. With blockchain, there’s no need for a Bank for International Settlements, and I see a very natural progression into something like that.”