Follow the FinTech: the new battle for control

Money, power and politics have always been linked to each other. The control of banks and finance services is an important way to use power and control macro developments. For example, anti-money laundering measures are an important way to fight terrorism. With FinTech and blockchain ushering in a new phase of finance services, that also means a battle over who will control them.

The US government and financial institutions have had an important role in international finance. Many British and Swiss bank have learned this the hard way, paying billions of dollars in penalties or settlements when the US caught them in money laundering activities or other investment regulation issues. The blocking of Russians banks and money sources of influential Russians has been an important part of sanctions against Russia since the Crimea occupation and East Ukraine war. Russia has also realized this and is trying to develop alternative systems for finance.

The big game will be between China and the USA. On a broader level, this is also a battle between centralized government-controlled systems and more distributed blockchain-based systems. The rise of Chinese FinTech finance services and distributed services are challenging the positions of the US institutions.

UnionPay card services are expanding around the world, initially to serve Chinese tourists. WeChat is also used worldwide,  and its money transfer services are also becoming more global. Alibaba’s Ant Financial Services is a huge business – the highest valued FinTech company in the world, in fact.

New money transfer services and payment services – centralized or distributed – are a threat to SWIFT and credit card networks, which have also been very important to control international finance and money flows. If someone can block card payments and money transfers in a country, they can have a major impact on life and politics in that country.

We now witness trade wars and increasing tensions in international affairs. At the same time, we’re seeing disruption in finance services. Sooner or later governments will also be interested in FinTech services. They have mainly been interested in controlling services in terms of finance regulations, but the political role of these services is also becoming more evident.

We can already expect that Southeast Asia and other emerging markets in Africa will be important areas in the battle of future finance dominance. In those areas, FinTech services can rapidly achieve a key role in financial inclusion of people who have lived without access to traditional finance services like banking or credit cards. These are also areas where China is investing heavily and exerting as much influence as it can.

FinTech companies have become strategically important quite rapidly. They offer access to money and its control that is similar to banks and credit card companies, but with the ability to become global much faster than incumbents. They also collect a lot of data that governments and institutions would love to have access to.

The impact of distributed models is still difficult to evaluate. If governments lose control of money and finance institutions, what is left? The monopoly to collect taxes and use violence are the ultimate tools of governments, but to keep those, they need to monitor money transaction flows and collect tax money.

At the same time, many blockchain visionaries have been too ideological. For all the talk of radical transformations to distributed systems, the old institutions won’t give up their position without a fight, and totally distributed trustless systems and communities are not easy to implement. In the longer run, however, their influence could be really fundamental, once we get past the fancy ICO phase and move on to more serious solutions.

We’ll see a lot of development in FinTech services during the next few years that will challenge the position of banks and other traditional institutions. But it won’t be a battle of market shares and revenue so much as a battle of international politics and strategic positions. We’ll probably see this soon also in FinTech investments. We have already seen how important the control of data and social media can be. The control of finance services and money is even more important. As the digital age ‘Deep Throat’ might say, “Follow the FinTech.”

Follow the money comment: https://en.wikipedia.org/wiki/Follow_the_money

The article first appeared on Disruptive.Asia.