A new fintech report by the Massachusetts Institute of Technology (MIT) has legacy banking will “undoubtedly disappear” and that future banking will need to handle both private and state-issued virtual currencies.
MIT: Legacy Culture ‘Inhibits Innovation’
The report, dubbed “DIGITAL BANKING MANIFESTO: THE END OF BANKS?” was released this month by Alex Lipton, David Shrier and Alex Pentland of MIT’s connection science and engineering department. It is part of a trend, which reflects growing opinion in economics circles that disruptive fintech will be unavoidable in the future global financial landscape.
“[Banking activity] is well suited to be digitized, yet the prevalence of legacy systems and legacy culture inhibits banks from embracing innovation as much as they should in order to survive and thrive in the digital economy of the 21 century,” the report says.
“The root causes of banking malaise should be obvious – old-fashioned banks are far behind the latest technological breakthroughs; they also have a poor handle of the risks on their books.”
This “poor handle” has been underlined many times in traditional institutions’ statements and paperwork surrounding Bitcoin in particular. From incorrect usage of certain terms to outright failure to comprehend what virtual currency really is, the relationship between legacy finance and disruptive fintech has been predictably rocky. MIT, however, says that without doubt, the former will need to reconcile its differences with the latter in the future.
“The unsatisfactory state of affairs with existing banks opens a unique opportunity for building a digital bank from scratch,” the report continues. “Such a bank will fulfill its mission by utilizing the most advanced technologies, including cryptography and distributed ledger techniques.”
“In addition, its infrastructure will be flexible enough to handle both private digital currencies (such as Bitcoin) and potential government issued currencies (such as Bitcoin),” it adds.
Nonetheless, MIT does not come out sabre-rattling in favor of decentralization and revolutionary industry breakdown. Indeed former MIT senior lecturer Trond Undheim told Bloomberg earlier this month that virtual currency will not get the free reign many proponents say is necessary.
“Even bitcoin enthusiasts are slowly realizing that regulation is necessary. That’s the only way it will survive. That’s also the key to its wider adoption,” he said.
The enthusiasm behind the latest report however is plain to see. Heading up the findings is a quote by UK disruptor bank Atom CEO Mark Mullen, a choice which also underlines MIT’s position on blockchain-based fintech’s future in global banking.
Banks are trying to be cool and hip and build super cool digital front ends […] But it’s like putting lipstick on a pig – ultimately it’s still a pig and the new front end is still running into an awful digital back end.
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