banking 4.0

(1) who the banking 4.0 is made for? we make payments not because we feel the need to pay, but because it’s part of a longer chain. for instance, if we go to the doctor and pay for the consultation, our relationship is directly with the doctor, while the payment card, terminal, two banks, and the payment system are just infrastructure created to securely and reliably process the payment. the bitcoin blockchain concept has already shown that this task can be solved in other ways.

payment services within banking 4.0 will be exclusively embedded in other businesses that generate value for the end customer, just like water or electricity. an electric company is essential for our lives, we pay the bill, but we don’t expect much innovation from it and don’t plan to give it much attention.

a good example is public transportation in budapest, where i buy a universal ticket through a mobile app and use all types of transport without knowing the specific economics behind it — i only care about the ticket price and the service of getting me to my destination. needless to say, the name of the payment operator or tram depot operator doesn’t matter much to me.

(2) customer focus. a universal bank is sacred on its own. it has the power to refuse to open an account for you, and it can negatively affect your life. you need to go to the bank to live a normal life, for example, to extend your residence permit or pay utility bills.

psd2 was designed to weaken the monopoly and influence universal banks have on people’s lives. customer data must become open through open banking, lightweight payment licenses lower the entry barrier, and fintech companies are becoming the most prevalent players on the market.

however, bnpl installment services are clear representatives of banking 4.0, provided directly by the store itself. fintech services and even banks hardly participate in the customer’s purchase scenario, though they still “label the pipes.” services such as issuing payment cards will also be available directly to companies.

p2p lending is a good example of next-generation banking, but the issue of scoring systems is still not well addressed. there are liquidity pools, family offices, blockchain infrastructure — what’s needed is independent and high-quality scoring.

(3) the defi alternative. as much as i’d like it, it’s unlikely that payment liberalization will reach the level of anonymous blockchains. society seems entirely unprepared for this. for banking 4.0, defi concepts should be an unattainable ideal. individual ideas can be integrated, such as using corporate dlt technologies for kyc/aml procedures and reputation.

it’s important to show that the payment industry can effectively carry out banking 4.0 without heavy involvement from the central bank. this means rejecting the concept of cbdc currencies issued by central banks as the standard.

(4) security is open source. we need to move away from declarative security toward security ensured by stable algorithms, open for external review. the idea of centralized information security is hopelessly outdated, the number of security incidents is growing, while the economic efficiency of protection methods is declining.

looking at just the software aspect, any payment solution is a superposition of at least dozens of programs and protocols. who knows what’s going on with security there? take mobile banking apps, for example — only visa and mastercard have seriously addressed the issue, but how many are ready to pay $50k-$80k for work with a special lab to enhance secure programming skills? and it salaries aren’t low, there’s a shortage of staff, and companies need to balance their costs somehow.

open source shifts many risks to the community and provides more opportunities for code reuse. we create value not only for ourselves but for the entire developer community, also benefiting from its work. large corporations are partly following this path by releasing their developments to the public.

closed systems are always more vulnerable than open ones. in b2b, there’s widespread neglect of security, covered by certificates and the hope that no one will hack them. behind the polished presentation slides lies chaos.

(5) sovereign digital identity (sdi). a kyc/aml solution — distributed reputation. sdi mechanics allow the development of protocols that can confirm the reputation of a potential client, for instance, within a closed banking community. moreover, this can also be done transactionally, significantly improving the quality of evaluation and completely eliminating a huge layer of distrust, and consequently, repressive procedures from operational activities.

payments are primarily about trust. both parties in a transaction want to be confident in each other’s legality and solvency. in the eu today, this task is being tackled from the top with strict aml procedures, which essentially treat every potential client as a potential criminal. this policy can be taken to absurdity by requesting a source of funds every time someone buys coffee in a store.

here, the regulator has created a paradox — either there is heavy intervention in the transaction and onboarding process, making the regulator responsible, or the responsibility is delegated to the participants, but they must then have much more freedom. decentralized reputation is the solution. banking 4.0 trusts blockchain sdi and zkprof protocols when evaluating a counterparty. this provides high results at low implementation costs.

(6) quality. discussing banking 4.0 is only possible in the context of improving the service quality for the end buyer or user of payment services. all other points are secondary. bnpl is convenient because it saves my time and money — i get a consumer loan instantly. previous-generation banking offers at least registration with a microloan service and passing express scoring.

the same goal is pursued by a distributed and open-source approach to software development. current banking in the eu seems unable to deliver ui/ux expertise, perform testing, or provide even basic functionality. an alternative — the bank card from gnosispay — claimed to integrate with third-party mobile apps, which makes a lot of sense, as everyone focuses on their own function.

there is no need to even mention zkprof mechanisms, which can streamline onboarding procedures, bogged down by a superficial and formal approach to strict kyc/aml procedures. another technological framework can sometimes help — a “good” homeopath won’t replace a neurosurgeon.