How Blockchain Will Disrupt the Philippines’ Banking Industry
Since the creation of Bitcoin in 2009, its value has gone up, reaching a value of almost $20,000 in 2017. Seeing the potential of Bitcoin’s value, thousands of other coins and tokens have emerged, taking advantage of blockchain technology in the development of cryptocurrencies. In fact, there are 30 new ICOs daily, in a race to be the next big cryptocurrency. The question is, will cryptocurrencies replace fiat currencies? How will this trickle down to the financial sector and cause major disruption?
Decentralization and The Rise of Unregulated Currencies
Our current system relies on a governing body as an institution of trust. If you want to apply for a loan, banks have to check your credit history. If you want to send money overseas, you have to go to a remittance center and pay their transaction fee.
“The blockchain/trust economy trend represents a remarkable power shift from large, centralised trust agents to the individual.” — Deloitte
The future promised by this technology is a world where trust can exist directly between strangers, building reputation based on an individual’s digital transactions recorded on a public ledger secured by a proof-of-work system using advanced cryptography.
As a customer, imagine making online transactions in the blink of an eye — no payment gateway to collect your credit card details, no waiting for the bank to send your billing statement, and no more going to the bank’s website or branch to pay your bills! Transactions are made peer-to-peer, with minimal or no transaction fees.
Changing the World of Banking
“From a macro perspective, banks [and financial institutions] serve as the critical storehouses and transfer hubs of value.” — CB Insights
They act as intermediaries — enabling depositors to pay merchants, offering credit to make advanced purchases, or allowing remittances to worldwide destinations — which increase transaction costs, limiting the minimum transaction size and cutting off the possibility for small casual transactions.
Backend, tedious processes are at work. Traditionally, settlements between merchants and banks can take up to days. As consumers, you would have to wait three to five days for your payments to be cleared and verified behind the scenes after swiping your credit card at a local merchant. With cryptocurrencies, however, transactions can be processed within hours.³
Banks have joined the bandwagon using the Ripple Network — a digital payment protocol that allows a seamless transfer of money in any form. Ripple connects banks, payment providers, digital asset exchanges and corporates to provide one frictionless experience to send money globally. “The digital currency, XRP, acts as a bridge currency to other currencies.”⁴
According to CB Insights, “Swiss bank UBS and UK-based Barclays are both experimenting with blockchain as a way to expedite back office functions and settlement, which some in the banking industry say could cut up to $20B in middleman costs.
Banks are also investing in blockchain startups such as R3 CEV, which is working with an 80+ member consortium of banks, regulators, and technology partners to develop Corda, a blockchain platform designed to be the “new operating system” for financial markets.
In the Philippines though, majority of the population remains unbanked. While only 14% of Filipinos have bank accounts, an estimated 32% of the population have access to smartphones — which sparked local Philippine start-up, coins.ph, to create a mobile wallet enabling peer-to-peer transfer.
In the Philippines, cash remittances or those coursed through banks by OFWs totaled $28.06 billion. Imagine all these remittances passing through a remittance institution, which normally takes 10%. With the entrance of bitcoin remittances by fintech startups like rebit.ph, coins.ph, and Bloom Solutions, transaction fees range between zero to one percent — releasing about $2 billion in the economy.⁵
Access to Fundraising
Traditionally, Philippine companies seeking funding can make an Initial Public Offering (IPO), which requires a market capitalization and net tangible assets of P500M and a track record of profitable operations for three full fiscal years (plus a ton of other requirements). This alone eliminates small start-ups and limits their options to getting funded by a Venture Capital (VC) or to making a loan through a financial institution (which will again ask for requirements that will limit their capability to do so).
Thanks to the concept of an Initial Coin Offering (ICO), now anyone has access to fundraising. According to CB Insights, “over the course of 2017, a whopping $5.6B was raised through ICOs.”
While there are ICOs that aim to use blockchain technology to solve problems or make a difference, investors should also be wary as to where to put their investments. Ever heard of a coin literally named “sh*tcoin”?
Needless to say, when there’s an initial offering, there’s trading too.
Bitcoin and Ethereum are the best known cryptocurrencies, but there are more than 1,000 being traded around the world, with a combined market cap of around $150 billion, according to Bank of America Merrill Lynch (BoAML).
Digital asset exchanges are emerging as one of the biggest winners of the cryptocurrency boom. The top 10 are generating as much as $3 million in fees a day, or heading for more than $1 billion per year, according to estimates compiled by Bloomberg.
A New Way of Getting Paid
There are two ways to get bitcoin (or even just a fraction of it) — mining and buying. But do you know that employers are already using bitcoin to pay their employees?
In the U.S, about 200 employers are using a third-party platform called Bitwage that lets workers determine how much of their pay comes in cryptocurrency. According to Bloomberg Law, “more companies will soon be paying in cryptocurrencies, especially those with large numbers of international employees or contractors.”
The Philippines is one of the top markets for outsourcing, with a projected revenue of $38.9 billion in five years. As such, Salarium, an end-to-end payroll platform with nearly 50% of its clientele in the BPO industry, saw the potential for a similar solution — raising $12 million funding through their ICO.
Every year, multinational and outsourcing companies remit $250 billion in the region to pay employees. They lose 2–2.5% and 3–5 days sending this money cross border with fees and forex. Through the SALPay token, funds can be remitted in minutes for 1% or less.
On a more direct note, a few companies have already started paying their employees’ salaries in bitcoin. Japanese company GMO Internet, a holding of businesses that employs over 4,000 people, offered to pay a portion of their salaries in Bitcoin. This will give employees the option to receive up to 100,000 yen ($890) monthly in BTC.
A few technology companies in the Philippines have already embraced the idea too — enabling employees to keep a portion of their salaries as an investment that may increase over time.
Definitely we’ve just begun scratching the surface of what blockchain can do — challenge the existence of paper currencies, break barriers in global transactions, eliminate tedious processes to enable efficient business, and introduce new business models. The list is endless. It’s exciting to see the changes that will unfold.