Professor Markos Zachariadis, Greensill Chair in FinTech & Information Systems at Alliance Manchester Business School, comments on the impact of COVID-19 on blockchain innovation and financial services
Question: Traditionally, financial services have been geared towards the better off in society, with those on lower incomes either marginalised or forced to seek financial support through more expensive means (“poverty premium”). Do you think in the near (and distant) future people will come to look upon the COVID-19 pandemic as a watershed moment in terms of financial services?
Prof Zachariadis’ answer: “The COVID-19 crisis reinforces the idea that we need ‘bigger and better’ digital financial services. Now is the time to put fintech businesses to work and invest more in order to provide more inclusive, cheaper and faster services to all. The fintech ‘revolution’ largely began as a response to the 2007/08 financial crisis, so, let’s hope that this crisis will not interrupt but will accelerate digital transformation and prove fintech’s worth.”
What does the fallout from coronavirus say, do you think, about the current financial systems in place?
“The slow pace of financial aid distribution to SMEs and the self-employed says something important about the responsiveness of the current financial infrastructure. If loans are not reaching struggling businesses quickly enough then there will be a risk to the UK’s economic recovery post-COVID-19. Things will need to change, and the government and creditors will need to improvise and find new ways of credit distribution.”
There was a Forbes report published in late February that stated companies are more likely to use blockchain for traceability and provenance than for payments and settlement – would you agree or disagree with that?
“Blockchain is a broadly-defined, back-office technology that comes in many different variations. In general terms, some of its characteristics such as time-stamping, pseudonymity and immutability, make it a popular candidate for keeping valid records of ownership of digital assets. As long as these are on-chain and there is no other physical off-chain representation, then it can easily be used to ‘prove’ how value and assets are allocated between parties, and who owns what. As these records are permanent and cannot be changed, then auditors or regulators are able to trace past transactions, which is particularly important in many contexts. Payments are a more ‘sensitive’ business and blockchain, while helpful, can be proved problematic for a variety of reasons.”
Do you think it is only a matter of time before we have completely cashless societies?
“In theory, yes – we may soon live in completely cashless societies! But this rests on several assumptions and can carry a number of risks. Everyone has to be able to access a bank account, and to manage their money they’ll need access to a smart device or the internet. In some countries, internet coverage is poor and many people cannot afford a smartphone, let alone pay for data or air-time, so alternatives must be found. A good example of this is Mpesa, the mobile money service launched in Africa in 2007, which provides financial services to thousands of people who have limited access to bank accounts.
“Added to this issue is the question of privacy. Without cash, a big part of personal freedom is being removed. All digital transactions leave a digital trace behind, so if someone wishes to stay anonymous and perform a private transaction then that won’t be possible. Privacy risks being compromised, and at the moment there is no alternative for this that outstrips physical currency.”
Do you think blockchain-powered universal basic income (UBI) is possible? If not now, in the near future?
“The UBI discussion is a big one and has many parameters – political, economic and technological – but the interesting factor here is its distribution. Recently there was mention of a ‘digital dollar’ included in the Take Responsibility for Families and Workers Act in the US as a means of distributing financial aid amid the coronavirus crisis, which was later removed from the bill. In that, there was no mention of using a blockchain infrastructure, but this could certainly be a possibility – although blockchain isn’t the only solution on offer. There are other technologies capable of moving value around if there is a central entity to manage the system, such as a central banking infrastructure.”