Trillions of Kodak Moments
The world is about to embark on a financial revolution. Changes bigger than in the past one hundred years.
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Blockchain technology’s trustless decentralization multiplied by consumer demand for instancy will drive government policy globally. In particular the blockchain’s ability for computers to ‘create property rights’ in real-time has fundamentally changed the world of finance in particular. The blockchain and Web 3.0 in particular are about to bring trust to an untrusted network.
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Technology driving consumers driving policy driving technology. This tech flywheel is only just getting started. Combined with neural networks, we can see a decentralized future where finance operates in real-time, with zero latency, trustless parameters, and fully interoperable layers of trust. This “zero knowledge” environment will be ‘supercharged’ by composable smart contracts that enable users to make commitments - to make money perform exactly as the user designs. Composability combined with real-time payment is a complete financial game changer. Whether current legacy financial institutions recognize this or not will determine their own longevity.
Real Time Payments (RTP) will underpin a new world of possibilities when combined with blockchain driven smart contracts wrapped in rich data, open banking, and interoperability in a decentralized global economy. As more of the underlying technology gets abstracted away, the focus will shift towards what people can do with their money and not the inefficiency that marks most of the traditional financial world.
Cryptographic primitives, such as Holographic Proofs, Elliptic-Curve Cryptography, Ciphers and Digital Signatures and their rapidly developing descendants - will only accelerate this push towards instant always-on.
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From taking film to the Kodak store to develop and coming back two days later to see if it is ready - instant real-time transfers globally will be the new normal.
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With real-time payments, a tsunami of beautiful data is about to be created.
But, as payments move faster, too will fraudsters, hackers criminals and cyberstates. The race for security will be fiercely contested. While blockchain enabled verification will assist, it will not be a full match for hackers.
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Consumers and financial institutions must rigorously prepare for both sides of the lightning bolt. The largest opportunity and threat in finance’s history will be the lightning speed movement of funds inwards and outwards. Many financial institutions simply will not make it through the next wave of instant disruption.
While cyber-attacks and fraud will be relentless, consumers simply won’t accept anything less than instant hyper-security. Their operation within a trustless decentralized network will be standard.
Mediocre technology or latency will be unacceptable. The market will decide. Legacy systems and silos will simply crumble under the weight of consumer dissatisfaction.
Legacy banks and legacy infrastructure are going to be decimated.
Kaput. Finito la musica.
Life On-Demand
Consumers have become accustomed to on-demand real-time interactivity. Immersed in technology, with shorter attention spans, tomorrow’s generations simply won’t wait – they won’t have to. Financial institutions have long grappled with what that means for their platforms and customers. Many won’t make the journey ahead.
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Their systems, policies, procedures, and governance are simply incapable of dealing with the new world of Real Time Interactivity. Combined with exciting technologies such as DeFi, Crypto, Zero Knowledge, Optimistic Roll-Ups, RT3D (Real Time 3D graphics), a whole new world of finance is about to open up to the public gaze.
RTP will also mean that banking will have fewer opportunities to interact visibly in traditional channels with customers. Customer interaction will look very different when it’s not in person but via API feeds. Propelled by advanced neural networks, banking is about to become hyper-personalized - down to the most intricate DNA of each and every personal transaction. Exponentially learning with each neural iteration, models will augment the experience to become infinitely more powerful than pure human touch.
Very soon we’ll be welcoming a new world driven by Fintech x AI.
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Speed to Consumer
The speed with which digital natives process and interpret information is far faster than their analogue predecessors. People’s patience is now very limited for good reason - we don’t have to wait. Everything is available - on-demand. Travel, food, entertainment, education, dating - there is no longer any patience nor need to wait. Payments and their functionality will be no different.
Bank branches will be as relevant as Blockbuster Video stores.
Technology now enables simultaneous clearing of funds in real-time. Powerful algorithms behind cryptographic encryption, security, latency, and protection of digital rights have never been stronger. They will need to be in order to stay ahead of fraud and hacking.
FedNow
With the world’s largest economy now embracing real-time payments (FedNow initiative), it is no longer a matter of if but when the global economy will be connected real-time. FedNow will be the first new payment rail in the United States since the introduction of the Automated Clearing House (ACH) in the early 1970s. This new payment service, designed by the Federal Reserve, will enable real-time payments (RTP) for financial institutions of any size, in any community—365 days of the year. FedNow is due to be available in 2023 / 24.
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Similar to RTP, the FedNow service enables instant fund transfers between two bank accounts, even on bank holidays, weekends, or outside of business hours. What sets FedNow apart from RTP and other instant payment services is that FedNow will service all federal reserve banks through the FedLine® network, which provides payment and information services to over 10,000 financial institutions.
RTP will come whether institutions are ready or not. Together with initiatives such as PSD2, SWIFT gpi and ISO 20022, policy (driven by their constituent voters) is driving technological change. With this new infrastructure, people and small businesses can make real-time transactions through reserve banks accounts of participating banks. The key here is that transactions are only possible between FedNow participating banks. The hope is that FedNow will be adopted by more local banks—providing equitable access to more people. The question remains how many financial institutions will adopt FedNow right away, and how long the rollout phase may take. Another major question is how many people will adopt ‘decentralized’ real-time payment platforms such as cryptocurrencies, which will effectively navigate greater distances - peer-to-peer, b2b, b2c etc. - with cryptographically enhanced capabilities that may surpass those of a centralized (e.g., Federal Reserve) organization.
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The key will be the ongoing relationship between the two. Future policymakers will have to bridge this game. RTP serves as an alternative payment method to options such as checks and ACH (Automated Clearing House), which use batched or delayed payments. RTP allows entities to make instant business-to-business (B2B), peer-to-peer (P2P), business-to-consumer (B2C), and consumer-to-business (C2B) transfers—instantly, ubiquitously.
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"Moving money will faster than sending an instant message. RTP allows entities to make instant B2B, P2P & C2B transfers - instantly, ubiquitously, and safely. Movement of Money will be as easy as sending a WhatsApp Message, only faster. "
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Correcting for Regression
According to Forbes Research, right now in the USA alone, more than 40% of Americans don’t have $400 in their savings account.
People are forced to juggle and guesstimate when cheques (either from their employer or for their bills) land in their accounts. Every time this 40% of population gets it wrong, they pay.
Consumers coughed up more than $34 billion in overdraft fees last year alone (Forbes). The research also suggests that overdraft fees have gone up — in 2000, you’d pay $20 on average. Today it’s over $40. After decades of raking billions of dollars from mostly poor people short of cash in their accounts, the practice is coming under more intense scrutiny - however technology is sure to be faster than policy makers in changing this rake. Credit union fees have gone up from $15 in 2000 to $29 now. Banks are clearly engaged in profiteering from these 40% of Americans in particular.
If you’re a contractor today getting paid by cheque, that piece of paper could take 2 days to clear once you’ve taken it to the bank, but if you’ve got an overdraft in your account, it could take up to 7 days to clear - without you knowing which day you’re good for the money. Profiteering.
So, everyone in this category is simply doing the juggling act of ‘ok my paycheck will land in 2 days, I just put out my rent cheque, it posted for a few days so maybe I can afford to pay another bill.
“Bill Gambling.”
Every time you miscalculate this, there is a $30 overdraft fee fine or rake. It’s probably the biggest financially regressive tax in the USA (if not globally) at the moment. $30 for a low-income individual with less than $400 in savings is a massive impost compared to middle / high net worth individuals who would never have to pay that impost to begin with.
Snail Mail versus Email
ACH (Automated Clearing Houses) compared with RTP are analogous to snail mail and email. ACH batches all the payments - which is great for banks - tiny payments, small payments, usually all sent off once per day (or twice per day). A world away from RTP.
While involvement in the FedNow policy is now taking serious pace, even FedNow’s policy approach is being disrupted by the excitement of the blockchain : DeFi, Crypto and their more powerful digital ancestors.
Currently the involvement of the 10,000 US financial institutions is lukewarm. However, once financial institutions find their profits being eroded or their market share being eaten by fintechs - they’ll need to act. Acquiring Fintechs will only go far to plug their silos. They are in fact creating more silos in this acquisition process.
It will be too late for many.
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If fraudsters and hackers don’t destroy the banks, consumers will leave them in droves. Tomorrow’s consumer will simply “cancel” the financial institutions. No callback, no email, no sorry, no feedback. Instant On also equates to Instant Off. With reduced switching costs and instant onboarding, the lack of involvement will be costly for those without the right architecture
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RTP Opportunities
Real-time payments are not just faster or just instant; they are laying the foundations for the next generation of commerce. API enabled commerce where payments talk to systems (eg. receivables, customer data) that also talk directly to the payee / payer.
Strengthening this API feed is the power of cryptographic primitives to build trust in an untrusted environment. An environment where any adversarial participant is able to trust another adversarial participant in the sharing of knowledge. By the very composable nature of smart contract and immutable nature of the blockchain - RTP opportunities will become exponentially scalable.
When combined with rich data, open banking, and interoperability in a highly networked global economy, real-time payments will underpin a new world of possibilities. There is now a clear path to where the entire world’s financial systems will operate on the blockchain. A natural evolution of finance (and other systems such as social networks), whereby trustless environments are able to be created through advanced mathematics.
With real-time payments, funds now travel from account to account instantly, at any time, with both the sender and receiver being notified instantly. In the real-time payment’s ecosystem, there are numerous players – banks, corporates, market infrastructures, technology vendors – that need to work to the same standards if their solutions are to be widely adopted across the network. ISO 20022 presents a common financial language globally. An opportunity to standardize the methodology, process, and repository to be used by all financial community members. A real question exists whether this common language will be usurped by decentralized cryptographic languages : e.g., cryptocurrencies or hybrids of cryptocurrency and fiat currencies. Another major question is borne from decentralization which is : what will relationships with legacy financial systems have in a decentralized global village.
The format means financial institutions will speak the same language when they exchange data that accompanies transactions.
In the same way that VHS fueled the growth of videotapes and home movies, or the TCP/IP protocol laid the foundation for the internet, ISO 20022 may be the catalyst for payments innovation and the financial language common for all parties. This means that other services can overlay payments, making greater use of the data that sits underneath transactions.
Payments with invoice information enable automatic reconciliation; transactions with value-added tax calculations allow easier accounting; and car purchases with accompanying vehicle information make for easier registration. Such solutions are possible because they are built using the same standards and can be applied uniformly across the various real-time payment’s infrastructure around the world.
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"As payments move faster, security becomes the final frontier to chaos. Criminals will seek to exploit faster payments for fraud or money laundering purposes. Further, when payments settle instantly, the opportunity to recover funds is greatly reduced. Speed and safety must evolve together to maintain integrity & security of the payments system. It cannot be ignored that along with instant payments comes instant fraud, instant money laundering and instant bank runs.
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Such speed obviously has implications for treasurers, technology officers and their liquidity management team. These examples demonstrate the need for risk management to also be in real-time, with compliance solutions that are sophisticated enough to detect sanctions violations and money laundering, for example, in milliseconds.
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The lumbering giants with legacy systems, and legacy practices, will not be able to keep pace in the real-time world of innovation. Security is obviously a concern for banks and often cited in the past by decision makers as a reason for not moving to the cloud. However, if they were concerned about cloud (with centralized authority) - the decentralized nature of crypto will surely challenge many of them further.
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2 : Payments Services Directive 2 [PSD2].
With the second Payments Services Directive (PSD2), data is viewed as belonging to the customers – and not banks – and financial institutions must allow third party providers access to customer accounts if the customer requests it. This enables a range of players to offer financial solutions, not just banks. Tomorrow, anyone with the right software can give fintech a go - this includes individual digital wallets.
In a very simple form, it could be an account aggregator app that has data from various accounts feeding into it, crunching transaction data to offer financial advice.
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Or it could be an application that plays a musical note for each transaction on an account – a high note for credit, a higher note for more credit, a low note for debit, and so on, playing a melody of current account payments. The possibilities are endless, all enabled by the principles of open banking, APIs, and because of the real-time payment system that lies underneath.
For example, an individual buying a car could be offered finance by a car dealer, which can be arranged – along with the payment – instantly. On a larger scale, partnerships could mean that car dealers could be offered finance on the spot – and the instant funds to secure the best deal – when they buy cars at wholesale auctions. More domestic real-time systems are coming online, and seamless cross-border real-time transactions – through initiatives such as SWIFT gpi and P27 – will soon be a reality. This real-time environment requires preparation as other areas, aside from payments, need to be brought up to speed, such as accounting, risk detection and liquidity management systems.
SWIFT gpi
SWIFT gpi is a quantum leap to improve speed, security, and transparency issues in payment processing standards. It aims to be the new standard in global payments. Financial institutions are now able to send and receive funds quickly and securely to anyone, anywhere in the world, with full transparency over where a payment is at any given moment. SWIFT gpi dramatically improves cross-border payments across the correspondent banking network, and not least for corporates for whom speed, certainty and a smooth international payments experience is an absolute must.
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Transactions, however, are just the beginning.
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Peter Toumbourou
Charleston Advisory Group
2025
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https://medium.com/@petertoumbourou/trillions-of-kodak-moments-f0d0a9385b93
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