P2P Banking Projects Say They’ll Lower Costs, Help the Underserved
Bitcoin and blockchain technology promise us we can “be our own bank”. A decentralized, P2P, digital financial system could bestow economic power on the billions of people with limited (or no) access to banking services. Let’s face it, though — fulfilling that promise is a long way off. Until cryptocurrencies achieve 100 percent market penetration, individuals and businesses must still interface with local fiats and the legacy financial system.
In the meantime though, blockchain and mobile technologies can still ease a lot of that friction. Even the concept of decentralization itself has created new business models and expressions, like “Uber-ization” and “the gig economy”.
So is it possible to do for banking what Uber did for transport, using blockchain and digital currencies? Two companies are attempting to do that, in similar yet different ways.
Everex and LakeBanker Building ‘Crowd Banking’ Networks
Everex and LakeBanker both operate out of Asia, and both have a mission to create peer-to-peer (P2P) cross-border financial networks. Both are looking to recruit thousands (or ideally millions) of independent agents and service providers to their platforms.
Through these agents, they say, they can do almost anything a bank can do — deposits and withdrawals, transfers and remittances, investments, even loans and insurance.
The technologies backing both platforms are designed to track balances, credits and debits, asset value and ownership — as well as handle risk and reputation.
Trust and security are big finance’s main selling points. Banks have recognizable logos and imposing physical headquarters to reinforce that image, even if it isn’t always deserved.
It will be a challenge to shift that trust to P2P networks of independent operators. However, if other industries are a guide, people are willing to do that for cost savings and efficiency.
The network members providing the services can be individuals or businesses, including those like convenience stores and existing money-exchangers. To participate effectively, they will need additional skills and resources — and in some cases will be subject to KYC/AML regulations.
Like Uber and Airbnb, Everex and LakeBanker will have to shoulder some of the responsibility, dealing with inevitable disputes and other issues.
P2P Banking Networks Already Operating Successfully
Both companies say their networks are already operating in some capacity — and successfully.
in 2016, Singapore-based Everex trialled its service with hundreds of Burmese migrant workers living in Thailand. Entering the system with their wages in Thai baht, they transferred a total 850,000 TBH ($26,000) back to relatives in Myanmar.
LakeBanker is a project spun off from Shanghai-based cryptocurrency exchange LakeBTC. LakeBTC, which has operated since 2013, launched its P2P LakeBanker network in 2015 initially as a means to deposit and withdraw fiat currencies on its trading platform.
After observing how well it worked, LakeBTC realized this P2P network could have far wider applications.
Both LakeBanker and Everex have created their own Ethereum-based ERC20 tokens which have various uses on the networks. Everex’s “EVX” forms part of its reputation and incentive system, giving holders access to easier credit and advanced features.
LakeBanker’s “banc” (BAC) is more like a native reserve currency, with users paying all interest and fees on the platform in BAC.
Backends and Handling Fiat Currencies
Both these platforms will still rely on traditional banks to some degree. As long as national fiat currencies remain a dominant part of the world economy, this is unavoidable.
This is probably where the two systems differ most. Apart from the mobile app software, Everex is based entirely on Ethereum, and that network handles all online records and transactions.
Everex has what it calls “CryptoCash”. This is essentially a series of Ethereum ERC20 tokens representing digitized national fiat currencies. The company says its target users will more readily accept digital tokens with familiar names and denominations. Those willing to use cryptocurrencies will also be able to store and trade them on the platform.
Each of the fiat units (e.g.: CryptoDollars, CryptoYen, CryptoBaht) is backed by an actual unit of local currency, which still needs to be stored in a bank. Everex says it will do this with verifiable escrow accounts — users can check any time to prove the balances actually exist.
LakeBanker’s fiat handling is more decentralized — each node, or “LakeBanker” on the network handles their own accounts, storage and distribution. In many cases these will be registered financial services providers or businesses.
Otherwise, transactions will be processed through the existing LakeBTC exchange platform with A.I. enhancements. LakeBanker’s team said this is preferable for handling the kind of volumes they anticipate.
Handling the transactions off-chain, they said, also means most will be free — and won’t be at the mercy of network fees and congestion.
Its A.I., dubbed “Sage”, co-ordinates the operators on the network — using live data to dynamically adjust fees and incentives, match supply and demand, and analyze credit risk.
Efficiency, Risk, Cost and Reach Are the Main Goals
Although the technological backend of each platform is quite different, both Everex and LakeBanker want this to be invisible and seamless to end users.
While some elements of the infrastructure remain centralized, both teams believe their networks of independent providers to serve customers will lead to the greatest cost savings and efficiencies.
It will hopefully also allow them to reach much larger numbers of those customers — everyone in the world. That’s something traditional banks, with institutional mindsets and massive overheads, have been unable to do well.
Do you think financial services can be decentralized like this? Let’s hear your thoughts.
Images via Everex, LakeBanker, Pixabay
Disclosure: Jon Southurst is an advisor to LakeBanker, and has previously performed contract work for Everex.