In Pursuit of Interoperability: What Crypto and Fintech can Learn from Each Other
Though companies describing their products as “innovative” or “cutting-edge” are a dime a dozen, true breakthroughs are achieved in the “adjacent possible” – a term coined by complex-system biologist Stuart Kauffman. That’s why the parallels in the rise of fintech and crypto, both offering new payment services, albeit on different payment rails, are impossible to ignore.
As fintech explores the adjacent possible to shape its next breakthrough, it has already begun borrowing from crypto’s blockchain technology to improve transaction processing. And as crypto continues its march towards the mainstream, it needs fintech’s mass appeal to attract – and retain – customers. But if the ultimate goal is mass interoperability, facilitating consumer access to the benefits of blockchain while offering increased financial autonomy, there remains more work to be done.
Nowhere is that more visible than when comparing fintech versus crypto user experience, discussing use cases, or considering regulatory frameworks.
The Rise of Fintech and the Popularity of Crypto
Financial technologies can be traced back decades, if not centuries. Indeed, some claim fintech has been around since 1886. The general consensus is that fintech appeared in the 1990s, when the internet became increasingly prevalent in our personal and professional lives. The true rise of fintech, however, is more commonly attributed to the period following the Global Financial Crisis of 2008.
Since then, we’ve seen fintech giants, such as Stripe, Wise, and N26 appear, taking over from traditional financial institutions in payment processing, money transfers, and digital banking. As these fintechs grew more sophisticated, market conditions changed. They became bound by the same restrictions as many of their traditional competitors, namely low interest rates.
But developing in parallel was a new contender. Introduced to the world in the Bitcoin Whitepaper and first launched in January 2009, cryptocurrency was an entirely new form of digital money. In just over a decade, crypto has changed the world.
Bitcoin is now legal tender in El Salvador. Celebrities are endorsing NFTs. The first crypto-linked ETF has begun trading on the New York Stock Exchange. In other words, crypto has reached fever pitch. And if Bitcoin was the undisputed king of crypto in the past, new contenders for the crown are staking their claim. Ethereum particularly has proven a worthy rival, overtaking Bitcoin for the number of daily active addresses. Others are providing alternatives to Bitcoin’s drawbacks – they’re faster, cheaper, and greener.
Alignment Between Fintech and Crypto
Companies at the forefront of fintech and crypto are looking for their next innovation. Exploring the adjacent possible, they’ve recognised the opportunities in borrowing from each other. How can a crypto company achieve the same mainstream success as a fintech? How can a fintech offer increased transaction speeds and seamless money transfers?
Historically, cryptocurrencies were the pastime of developers. It was assumed that a technical background and fluency in coding languages were a prerequisite to becoming involved in the crypto space. While it’s true that protocol interfaces were not mainstream user-friendly, once the idea of crypto began capturing public imagination, entrepreneurial crypto enthusiasts soon acknowledged the need for an improved customer experience.
After all, consumers have evolved to expect a high standard of service. Convenience is a main factor in decision-making. But as trends change and the benefits of blockchain become evident, convenience becomes a matter of personal choice. While some claim too much choice results in decision paralysis, it’s more about opportunity cost.
As consumers grow accustomed to using crypto in various ways – whether it’s sending stablecoins as remittance, earning interest in high-yield crypto savings accounts, or borrowing against crypto collateral – not having access to these services within the fintech platforms they use for traditional financial operations becomes inconvenient.
This gave rise to the first crypto-enabled fintech product: custodial wallets offering seamless exchange between fiat and cryptocurrencies. But entrepreneurial companies like Wirex, seeking to realise their mission of making all currencies equal, took it one step further. In 2015, Wirex launched the world’s first crypto-enabled debit card, followed shortly by the first crypto rewards programme. The innovations haven’t stopped since, with crypto-backed savings accounts and even the first “mass market” non-custodial wallet joining the Wirex portfolio in 2021.
Mainstream fintech has also sought to capitalise on the crypto trend. In 2020, fintech giant PayPal added cryptocurrency trading for its US-based customers, expanding the offering to the UK in 2021. Popular P2P payment service Cash App sells Bitcoin to American customers, while many others are adding the option to buy, hold, and exchange crypto on their platforms.
The Role of Regulation
This is despite the increased regulatory scrutiny the crypto industry has faced as its popularity grew. Now, as it struggles to shake its reputation for criminal activity – despite the significant improvements – it must decide between the desire among some proponents for a “libertarian fantasy” and its potential as a game-changing challenger to the established mainstream.
For fintech, the regulatory journey is familiar. As an industry operating within existing financial frameworks, it has arguably faced less pressure than crypto. The innovations it has introduced, however, has occasionally fallen foul of regulators. The collapse of payment company Wirecard in particular has brought questions of fintech regulation to the fore.
To avoid stifling innovation and continue serving consumer interests, both crypto and fintech must welcome regulation as an ongoing dialogue.
As crypto and fintech innovation and interoperability expand the adjacent possible, it’s ultimately the consumer who benefits. Crypto enthusiasts can enjoy improved user experience and a smoother customer journey, borrowed from the sleek interfaces of fintech, while mainstream fintech fans will benefit from the cheaper, faster payments and expanded financial possibilities presented by applying blockchain technologies.