Banks Will Directly Compete Against Benefits of Cryptocurrencies

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Yesterday, I wrote a post on Leo Finance that caught the attention of @josevas217, who invited me to join Project HOPE. Here is a link to that post: Cryptocurrencies Have Competition. The subject of this post is very much the same. However, having had time to think it through a little better, I have some additional information to add and some things to cut out.

Some of the key benefits of cryptocurrencies are that users are not at the mercy of banks, payments are faster than bank transfers, and payments are peer-to-peer. There are developments on the way that will allow the public to enjoy many of the same benefits of cryptocurrencies without having to learn how to use a new system. We will discuss Central Bank Digital Currencies and Instant Payments. Finally, we will discuss what these mean for cryptocurrencies.


One of the changes that are in the works are Central Bank Digital Currencies. China is currently rolling out a digital Yuan. The United States Government is very interested in developing a CBDC to prevent giving China an economic advantage. It seems they are working the problem rather quickly. Also, according to @coyotelation, Research reveals that Brazilians no longer want physical money. It appears that the financial trend will be to move towards digital currencies.

What does it mean to move to digital currencies? After all, most banking does not deal with physical cash. Banking largely consists of adjustments to electronic ledgers. Loans, credit cards, payments, and purchases are largely made using electronic methods that move money from one account to another.

The difference with CBDCs is that each citizen would have an account with the government, a Fed account, to receive benefits. It is a checking account that cannot be shut down by banks because the customer is unprofitable. In fact, these accounts would not permit people to overdraft, nor would they charge fees. The U.S. Treasury faced difficulties sending out stimulus payments to citizens because many do not have checking accounts. There is a large segment of the population that is unbanked.

The unbanked receive money by cash or check. They often pay fees to cash a check. They also pay fees to send payments. Often, the same reason the unbanked are unable to have a checking account is the same reason they do not have credit cards. CBDCs promise to bring in that segment of the population into the financial system. The unbanked have been a targeted demographic for cryptocurrency enthusiasts. CBDCs will no doubt steal some of the thunder of switching to crypto.

Instant Pay

In the United States, and around the world, there has been a realization that money transmittal is antiquated and inefficient. Money transmittal acts as an anchor on commerce both domestically, with the ACH system (or whatever your country uses), and internationally with the SWIFT payment system. It often takes days to send money from one party to another. Sending money has two components to it, payment and settlement. You can initiate a transfer on one day. The payment will settle a couple of days later. This is true for bank transfers as well as credit card merchant accounts.

Instant Pay projects aim to fix this problem by making transactions faster. One project that has been in the works for years is Same Day ACH. With Same Day ACH, you can initiate a payment within certain payment windows to have it transferred and settled on the same day. If you initiate payment in the morning, it would post by lunch time. An afternoon payment would settle by the early evening or the next morning. Unfortunately, Same Day ACH has been extremely slow in rolling out. It may be overtaken by the next instant payment project.

The other Instant Payment project in the United States is Real-Time Payments, or RTP. There has been more rapid progress and acceptance of RTP by large banks. RTP promises to transfer and settle payments within seconds or minutes.

Both Same Day ACH and RTP would significantly improve domestic money transfers. As for international money transfers, Ripple has been making great progress in providing their service to international banks, which will undoubtedly use XRP to some extent. To clarify, there are projects that will make payments fast both domestically and internationally.

Other advantages of Same Day ACH and RTP are that these are one-way payments and they are peer-to-peer. There are no chargebacks or canceled payments. Once you send the money, you are committed. Also, you no longer need the recipient to have a way to pull money out of your account, as that will not be an option. All you need is their account information to send your payment. No pull; only push. There are other features that principally benefit business customers in terms of audit trails.

Instant Pay also steals the thunder of cryptocurrencies due to the speed, finality, and peer-to-peer nature of payments. These are no longer competitive advantages of cryptos.

Where Does This Leave Cryptos?

The institution of CBDCs and Instant Pay projects around the world promise to take back some of the advantages of switching to crypto. There is little incentive for the uninitiated in blockchain technology to learn about it when their fiat account can do very much the same thing. Furthermore, if they haven't been bothered to learn how to use traditional fiat financial products, it is likely going crypto will be more out of their comfort level.

The marketing of cryptocurrencies will need to evolve to focus on some of the other advantages like privacy and higher yields. Cryptocurrencies are about to lose some of the most compelling selling points for people in working economies. Obviously, cryptocurrencies hold their value in failing economies, which one may argue includes all of them. Perhaps the marketing should pivot to using cryptocurrencies as a backup to fiat rather than a replacement. Anybody who lives in an area subject to natural disasters will understand emergency preparations if not the economic subtleties of cryptocurrencies. Big money is adapting to overcome the shortcomings that cryptocurrency advocates often cite. The message needs to change.