привіт фінтех-ентузіастам… That’s a hard one, I know. Hint: think of a country currently defending against a wholesale invasion!

This week brought about some important news from Washington about key institutions in the fintech ecosystem. What are institutions, and why do they matter? Nobel Laureate economist Douglas North defines institutions as “the rules of the game in a society or, more formally,… the humanly devised constraints that shape human interaction.” Because they “shape” human interaction, institutions are usually a very good predictor of future outcomes in markets and society as a whole.

Last week, over 60 companies and organizations, including fintech companies, joined the Aspen Institute’s open letter to Treasury Secretary Janet Yellen calling for a National Financial Inclusion Strategy. The letter supports the establishment of a new institution—a Presidential Commission—to lead that effort. The letter also draws attention to the “[h]istoric economic and social disparities, highlighted by Covid-19 and disproportionately borne by communities of color,” as well as the responsibility of the financial sector to address those disparities. I am sure that you know that there is a lot of financial exclusion in twenty-first century America. For example, in 2019, 22% of Americans were either unbanked or underbanked (do you know the difference?). When the pandemic hit, almost 60% of Black and Latino families had less than three months of emergency savings. Immediate financial assistance was crucial, but when Treasury scrambled to send out the “COVID-19 Stimulus Checks,” it lacked bank account information for half of eligible taxpayers!!

The question is: Despite disturbing incidents à la the Great Crypto Meltdown and the fact that digital currencies are mostly used for speculation, can the underlying technology achieve better financial inclusion by providing a cheaper and more reliable means of payment, especially during crises? Well, this article gives an example of how the answer could be in the affirmative.

In other “institutional” news, the Consumer Financial Protection Bureau (CFPB) opened the Office of Competition and Innovation, a new office whose aim is to invigorate innovation in financial services by promoting competition. The new office will enable the CFPB to better understand the anticompetitive practices big companies may utilize to stifle competition and to support new entrants in fintech markets. This is big news, as long as the lofty goals of the new office are actually implemented! More competition means more fintech innovation, which means better services and lower costs for consumers.

In your opinion, what are some ways (other than innovation) that big fintech companies may attempt to stymie outside players with superior products?

The last piece of institutional news came from the Hill: A draft of a bipartisan bill from Sens. Cynthia Lummis (R-WY) and Kirsten Gillibrand (D-NY) that would grant the CFTC a larger role in crypto regulation than the SEC. This shows that lawmakers largely side with the view expressed by the ECB President Christine Lagarde last week that crypto currencies should be regulated as assets rather than currencies.

Should all digital currencies be regulated as assets, even stablecoins?

Ok! Enough with institutions. Buckle up, let’s dive into the future!

Michael Miebach, CEO of Mastercard, told the audience last week at a panel session on central bank digital currencies (CBDCs) in Davos that he expects SWIFT to disappear in five years. SWIFT is a Belgian financial messaging network that connects over 11,000 financial institutions in over 200 countries. It has recently come under the spotlight after Western countries banned Russia from using it in response to Russia’s invasion of Ukraine. In April 2022, SWIFT processed over 46 million messages per day, even though completing a transaction can take several days. Last year, in collaboration with French IT company Capgemini, SWIFT started exploring how CBDCs could be interlinked to facilitate seamless cross-border payments. The success of such a system would logically be contingent upon the integration of a U.S. CBDC given the role of the USD as the global reserve currency. The question is when that can happen. The answer came Federal Reserve Vice Chair Lael Brainard at a House Financial Services Committee hearing last week. Brainard explained that if Congress were to approve the issuance of a U.S. CBDC, the time needed to “put in place the requisite security features and design features” is (surprise, surprise) five years! By then, SWIFT would be dead, according to Miebach.

In your view, can SWIFT survive the competition with digital currencies as a means of cross-border payments?

I welcome all your thoughts and opinions in the comments section.

See you next week!