Blockchain ROI, FC Barcelona Coins, and Mobile Banking for Digital Economy

Off the Blocks | Vol 102, February 18, 2020

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What Mobile Banking Means for the Digital Economy

This guest post by Christos Makridis, a Digital Fellow at the MIT Sloan Initiative first appeared on Data Driven Investor;

Everyone talks about “fintech.” But, fintech is nothing more than clever applications of financial technology to solve problems for consumers and businesses.

Going Digital

Between 2004 and 2016, the digital economy expanded at an annual rate of 5.6%, which was nearly four-times as fast the rate of the non-digital economy. Technological advances are making it possible to do things that we would have thought were science fiction just a decade ago.

One of these simple advances is mobile banking. The introduction of the iPhone provided consumers with a supercomputer at their fingertips, so it was only a matter of time before financial services companies began creating apps that allowed consumers to pay bills and borrow anywhere and anytime.

According to some estimates, mobile banking has grown from 16% to 28% of the population simply between 2014 and 2019. Focusing on those who have bank accounts in the first place, that percent is even higher—possibly as high as 50% as of 2017.

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Boon or Bane? Understanding the Pain Point in Banking

While mobile banking, and more generally online banking, is now made available by every major banking institution, a big question is how it has impacted consumers. For example, some people critique the rise of mobile banking, arguing that it is just one of the ways that companies are automating tasks so that they can save on costs and get away with lower quality customer service.

But, before we jump to any conclusions, we need to be clear about the pain point that consumers face in banking activities. Consumers want *convenient* access to capital, plain and simple. That’s part of the reason automated teller machines (ATMs) were introduced—to provide consumers with the option of getting cash from their account even if their nearest bank was not open.

However, not all communities are lucky enough to have banks on every corner as there are in large metropolitan areas, like Washington DC. In fact, some census tracts lack a bank within 10 miles of the center, making it potentially challenging for consumers to commute to a bank.

While concern for consumers to have access to banking activity is important, economists at the New York Federal Reserve found that most “banking deserts” are located in areas that are underbanked, suggesting that the absence of banks might be due to a lack of demand, rather than availability problems. In fact, the Federal Deposit Insurance Corporation (FDIC) found in a 2015 survey that “only 2 percent of unbanked respondents cited ‘inconvenient location’ as the main reason why they did not have a bank account.”

Transformation of Financial Services

In a research paper with Hugo Dante, I explored the impact of mobile banking of physical bank locations: are they substitutes, or complements? We found that mobile banking is a fairly strong substitute for physical locations: banking deserts are 1.3-4.7% more likely to have mobile banking and that an additional net bank branch opening is associated with a 0.3-0.7% decline in mobile banking.

While mobile banking is more common in more educated and younger areas, we found that some of the greatest benefits reside in the more rural communities. That shouldn’t be surprising—rural areas are, by definition, more spread out. That means having lots of banks is going to be more costly to maintain. So, mobile banking provides an alternative means of allowing consumers to live their lives without having to go in person as much to a physical branch.

Yes, mobile banking can have disadvantages. By definition, you’re not interacting with people as much. But, how many people went to banks for a social outing in the first place? The more substantive argument is that in person interactions allows banks to incorporate soft information about borrowers, providing a more tailored set of financial options to consumers. And, there is some evidence of that: an individual’s digital footprint is complementary to traditional credit bureau information.

But, whether the average consumer still needs to go in person to conduct their banking activity is still up for debate. We found that, while the closure of a nearby bank branch is associated with a decline in the use of credit, once we look at areas with similar levels of mobile banking, there is no relationship between branch closures and credit. This suggests that, even if at some point nearby banks were important for accessing credit, there are now simple alternatives.

Implications for the Data-driven Investor

The rise of mobile banking tells us something about successful consumer technologies: they are technologies that increase convenience without sacrificing the quality of the underlying service.

Mobile banking has taken off because the vast majority of consumers really don’t need to interact with someone in person to conduct most of their banking transactions. If it’s just paying a bill or transferring money, you can do that on your web browser or phone. This is already reshaping the occupational concentration of the financial services sector. Whereas the number of bank tellers has actually declined over the past decade, the number of science, technology, and mathematics (STEM) workers has increased substantially.

Look for ways to leverage technology to drive operational efficiencies in your schedule. And, when you see a technology that you really think is delivering value, you can bet that investment is going to take off sooner or later as more people start becoming aware of it.

Now some significant news from the world this week:

  1. Economics | IBM Blockchain VP: Every Dollar Spent on Blockchain Yields $15 on Cloud: Enterprise blockchain is a catalyst for further spending at Big Blue.

    It is driving additional spend. When you look at the direct attribution of the actual dollars spent on blockchain, we are seeing that for every dollar spent, $15 is spent on other cloud services.

    - Jerry Cuomo, IBM’s vice president of blockchain technologies

    The back-of-the-envelope math offers a revealing glimpse into the storied tech company’s current thinking on blockchain. Cuomo’s revenue figure comes as IBM works to bring enterprise blockchain closer into the company’s sprawling cloud offering. Some commentators have described the move as a reprioritization or even consolidation following the dissipating hype surrounding distributed ledger technology (DLT). [… Read More on Yahoo! Finance]

  2. Education | Mastercard, Binance X and Ripple's Xpring Join the Blockchain Education Alliance: The Blockchain Education Alliance launched by blockchain accelerator MouseBelt has gained several noteworthy new members. Ashlie Meredith, the university program director for MouseBelt Blockchain Accelerator, told Cointelegraph on Feb. 11 that the new members include payment processing behemoth Mastercard, the innovation arm of major crypto exchange Binance, Binance X, Ripple's accelerator Xpring and cryptocurrency exchange KuCoin. Smart contract platform NEO, internet-of-things startup IoTeX, blockchain security firm Quantstamp and big data blockchain service Constellation Labs also joined the alliance. [… Read More on CoinTelegraph]

  3. Security | DTCC Calls on Banks and Regulators to Help Address Blockchain Security Issues: The Depository Trust & Clearing Corporation (DTCC) wants the financial sector to form a consortium alongside regulators to reduce risks associated with blockchain. In a white paper, the New York-based post-trade financial services firm said participants in the financial sector should work to establish a set of "agreed-upon standards" that could address some of the security concerns surrounding the tech.

    In light of the speed of digital transformation within the financial services sector, DTCC calls for a coordinated strategy for the development of a principles-based framework to identify and address DLT specific security risks.

    The industry consortium can more effectively identify best practices and develop baseline security procedures, the whitepaper reads. To improve its effectiveness, DTCC says standardization "requires collaboration from professional organizations, the financial services sector, and its regulators." By including regulators in the creation of the framework, the firm argues, will ensure alignment with future legislation that can also be a better safeguard for industry participants as well as customers. [… Read More on Coindesk]

  4. Sports | Over 1M UEFA EURO 2020 Tickets To Be Distributed To Fans’ Mobile Phones: In terms of ticket demand, UEFA EURO 2020 is the biggest EURO ever and will bring football closer to the fans than ever before. To enhance the fan experience, tickets will be distributed to fans via a ground-breaking new blockchain-based mobile ticketing system, which will make entry into the stadium smooth, safe and secure. The new state-of-the-art mobile ticketing system will provide secure ticket distribution and help prevent the replication and duplication of tickets, with QR codes only being activated by Bluetooth once fans are in close proximity to the stadium. The UEFA EURO 2020 mobile ticket project builds upon the successful inaugural UEFA Nations League finals in June 2019 for which over 110,000 tickets (representing 80% of the tickets available) were successfully delivered to mobile phones for the four matches. [… Read More on UEFA]

  5. DeFi | Exploit During ETHDenver Reveals Experimental Nature of Decentralized Finance: Decentralized finance (DeFi) project bZx has suffered an attack in which a hacker successfully gamed multiple DeFi protocols to extract $350,000 from the platform, about 2 percent of the assets under management. In response, the company took down its lending and trading protocol Fulcrum at 7:00 UTC. The company was presenting at ETHDenver during the hack. The hackers took advantage of the company's pricing oracle to trick the protocol into giving up the cash. bZx depended on only one oracle for pricing, according to sources. The firm, which has yet to reappear at EthDenver, later confirmed in a tweet it will compensate lenders for potential losses. The attack could be symptomatic of a continuing issue in DeFi: how to source price information. The attack was even more notable because of its timing as the team had to deal with the hack during the ethereum community’s EthDenver hackathon, which largely focuses on DeFi. [… Read More on Coindesk]

The Final Word | FC Barcelona to Issue Tokens for Blockchain-Based Fan Platform

FC Barcelona’s Lionel Messi in action.
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FC Barcelona fans are about to get on the blockchain. Barca, as one of the world’s most popular football clubs is known, will issue tokens for use on a fan-engagement platform. The tokens, expected in the second quarter, will let holders vote on a variety of decisions about the team such as what music to play in the stadium when the team scores a goal. The idea is to let supporters around the world participate in the club. To get the coins, fans can download the app, buy the app’s native coins, known as Chiliz, and then use them to buy the team’s Barca Fan Tokens. Fans will be offered 40 million Barca coins at 2 euros each, and most of the proceeds will go to the club, Alexandre Dreyfus, chief executive officer of maker Chiliz, said in a phone interview. Chiliz tokens trade on several crypto exchanges, and can also be held in a cryptocurrency wallet. [… Read More on Bloomberg]

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