How Millennials and the 'Bitcoin Mindset' Will Change the Industry
Whether financial services executives love or hate Bitcoin, experts say the digital currency's underlying technology will inevitably affect their businesses. And the next generation of consumers are driving this change.
For decades, cryptographers have tried to disrupt the payments industry with new digital cash systems, but their efforts faded into obscurity, Rafael Pass, an associate professor of computer science at Cornell University told me during the Jacobs Technion-Cornell Institute's Future of Money conference last week. But the spread of Bitcoin as a decentralized, distributed, peer-to-peer electronic cash system has thrust cryptography into the mainstream over the past couple years.
"Now cryptography is cool," Pass said.
The conference, which was organized by renowed cryptographer, Ari Juels, revolved around how cryptography is shaping the evolution of money and payments.
"It's the dawn of a new era; I deeply believe that now it's not just hype," said Lauren Pollak, the financial services practice lead at Jump Associates, an innovation and consulting firm based in New York City. Because of the confluence of adaptations in technology, changes in consumer behavior and regulatory shifts, "there really are forces reshaping not only the financial system but money itself," she said during a presentation at the conference.
Although consumers typically think of money as physical notes and coins, this perception is changing as more payments move online. This shift is especially true for millennials, 71% of which would rather go to the dentist than visit a bank, according to the Millennial Disruption Index.
According to the research, 68% of millennials said that the way they access money will be totally different in five years and 71% said the way they pay will be completely different in five years.
Banks have relied on a few assumptions for their value proposition: Accessing large pools of capital is difficult; moving money from point A to point B, especially if it's across the world is problematic; and verifying both sides of a transaction is tough, said Pollak. "Those assumptions are becoming less and less true," she said.
Technologies like Apple Pay and Venmo are helping to make money more digital. Bitcoin is on the same path, but it still has many challenges ahead of it.
"Bitcoin is completely divorced from most of our everyday experiences," Pollak said. Its proponents need to decide what benefits to curate and then allow early adopters to dramatize those benefits, she said.
Bitcoin enthusiasts have traditionally zeroed in on the reduced cost and increased speed of transferring value over any distance, and the fraud reduction that could come from a system without the functionality for chargebacks and that logs every transaction on a public ledger called the blockchain.
But as the technology came under fire and the regulatory regime tightened, this rallying cry has diffused a bit. Bitcoin debit cards, for example, are meant to be a bridge technology, but they reinsert interchange fees and misjudge the need for plastic among a consumer base that is moving to mobile.
But if the cryptocurrency industry can reclaim its roots, it has significant opportunity to disrupt not only financial services and payments, but as hypothesized at the conference, equity markets through distributed IPO, legal systems through smart contracts and data preservation by recycling proof of work for storage.
And the next generation will be more likely to adopt these digital systems as their attachment to physical money dissipates. According to Pass, his young daughter was asked in school what paper dollar bills were used for, to which she said charity. She sees cash as something given to panhandlers on the street. But for everything else, money is purely digital.