Why Crypto Will Never Fix Payments (Feat. Patrick McKenzie)
Nov 15, 2023
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Patrick McKenzie, co-founder of Bits About Money, discusses why cryptocurrency is not a solution for payment problems. The podcast explores the nature of payments, impact of banking regulations, effects on banks, and the limitations of cryptocurrency.
Cryptocurrency is not a solution for payment problems.
Cash is losing ground as other payment methods gain popularity.
The focus should be on balancing regulation, facilitating innovation, and improving user experience in the payments industry.
Deep dives
Complexity of Payments
Payments are an integral part of transactions, involving multiple steps and complexities. Whether it's a simple coffee purchase or a complex invoicing process, payment serves as a message between the customer and the business, indicating the level of certainty regarding receiving payment. Payments go beyond just promises and involve mathematical infrastructure. For instance, checks, although outdated and unsafe, were an early form of payment where a written promise on paper facilitated the exchange of money between banks. The payments industry continues to evolve, with various payment methods competing for business and offering different benefits.
The Decline of Cash
Cash is losing ground as other payment methods gain popularity. Credit cards and digital payment systems offer benefits like rewards, automated tracking of transactions, and ease of use. Cash requires counting change and lacks built-in infrastructure to track payment details. With businesses and individuals moving away from cash, there is a growing variety of payment methods and systems, both centralized and decentralized. The future of payments is diverse, with different countries adopting specific payment systems that align with their societal and economic goals.
Challenges in the Payments Industry
The payments industry faces numerous challenges. Businesses dislike complex payment systems that impede their operations. The adoption process for payments products is often suboptimal, causing friction between businesses and customers. Additionally, banking regulations, such as KYC and AML, impact the usability and efficiency of payment infrastructure. The collapse of regional banks and the need for sustainable growth in the banking sector also affect the payments industry. The focus should be on balancing regulation, facilitating innovation, and improving the overall user experience to address these challenges.
The Potential of Internet Banking
In this episode, the speaker explores the idea that traditional physical bank branches may not be necessary for providing efficient banking services. They propose that basic banking services can be delivered more efficiently through the internet, potentially replacing the need for physical bank branches. This would allow banking services to be accessed through smartphones, making them widely available. The speaker discusses the concept of postal banking and suggests that having a bank account available on every phone can serve as a basic banking option, with the possibility of adding more complex banking services if desired.
The Role of Community and Regional Banks
While the Internet may transform banking services, the speaker acknowledges that community and regional banks will continue to play a significant role. They highlight the importance of these banks in capital formation and credit creation, particularly in areas outside major cities. The speaker emphasizes that the transition from thousands of financial institutions to a significantly reduced number would be challenging and unlikely to happen in the near future. They caution that such a transition would have drastic and potentially catastrophic consequences for the United States. Therefore, while new technologies may change aspects of banking, it is unlikely to lead to the complete disappearance of community and regional banks.
