Issue #39: The Future of Bank Accounts
I was reading an article about Axie Infinity (the blockchain game taking crypto and the Philippines by storm) in The Verge this week, and the founder shared an interesting statistic - “25% of our users have never had a bank account before. That means Axie wallets are the first time they’ve had access to financial services”.
This struck a chord with me because we’ve seen the idea of a bank account evolve a lot over the last 20 years since the Internet. People store value on so many different platforms now.
I also couldn’t help but think Axie was somehow different than the other innovations of the bank account that came before it - Paypal, Venmo/CashApp, and the super apps like WeChat, Go-Jek and Grab - because it is blockchain native.
Something interesting happens when you embed blockchain technology into the Internet…financial services goes from being a vertical to a horizontal.
Because of public blockchains, there is financial infrastructure beneath every website and mobile application…even games. If they want it.
Axie Infinity isn’t the first time a non-financial services application unintentionally became the de facto banking app for a group of people. Chat apps, then ridesharing apps (all in Asia) have successfully made the evolution from one-trick pony to ubiquitous super app.
But we’re going to see a lot more of this. Any application that has a transactional or earning component can be a bank account and have its own economy.
All this and more in today’s issue.
Let’s dive in…
The concept of the bank account began thousands of years ago. Before currency-based economies, we had a barter system. People traded things for other things (livestock, grains, produce). In large quantities, these are heavy and inconvenient to move, and people wanted a safe place to store their assets. Temples were an obvious place because they were already heavily guarded. You would drop your items off and the temples would keep track of who had deposited what.
The first bank accounts.
Over the years, banking-specific institutions emerged, but the bank account concept essentially stayed the same. As more regions of the world adopted currency-based economies, bank accounts continued to provide both security and convenience.
The traditional bank account existed largely undisrupted until the Internet.
At its core, a bank account does two things: secure your money, and make it accessible when you need it.
While most of us still have checking and savings accounts with a bank, we maintain balances on other platforms too. Fintechs have created Internet-native user experiences (like P2P payments) with a value capture effect that has turned them into mobile bank accounts. Paypal, then Venmo and Cash App, dominate the P2P payment vertical in the US. In Asia, it’s super apps like WeChat and Alipay.
Non-bank apps are winning because they provide a better customer experience.
Go-Jek and Grab
I love this example.
Ridesharing apps hit the scene between 2009-2012. While Uber dominated the US market, Go-Jek and Grab were having similar success in Southeast Asia. Grab actually purchased Uber’s Southeast Asia business in 2018.
What these companies quickly realized was their users were maintaining cash balances on the app. Go-Jek and Grab were unintentionally becoming bank accounts. The apps were so ubiquitous in their respective markets that adding broader payment functionality and convincing merchants to accept it was an easy sell.
Today, you can get a taxi, order good, pay for groceries, invest, even apply for insurance, all through the app.
What this tells me is people will hold money in the most convenient location. You can create a convenient experience a lot of ways. The super apps have taken the “one-stop-shop” approach. All your essential products and services in one app.
Quoting Casey Newton from The Verge, Axie Infinity is “…Pokémon on the blockchain. The game offers turn-based combat between teams of three cartoon monsters, known as Axies; each Axie has powers originating from their type (bug, bird, plant, etc.) and their various body parts. Pokemon on the blockchain.”
By playing the game, you earn SLP, one of two in-game currencies, which can be converted into fiat currency or used to buy in-game items.
As I mentioned above, 25% of Axie players have never had a bank account before. The Axie game, combined with a Metamask wallet, are the first financial services they’ve had access to.
Now, banks accounts exist in Philippines, but they aren’t practical for many people. The average annual income of a Filipino family is $7,000 per year. Simply maintaining a bank account and paying associated fees can be prohibitively expensive.
The unique thing about Axie is players are earning and being paid in the same app. In terms of an economy, there must be a compounding effect. I’d love to know what percentage of Axie earnings are reinvested in the game vs. cashed out.
Vertical vs. Horizontal
I said public blockchains turn financial services from a vertical to a horizontal, and I owe you an explanation.
Financial services is an industry, and the infrastructure that supports it is owned by companies. It is itself a vertical of products and services. Financial services regulation is a gatekeeper that prevents just anyone from offering these products and services.
Blockchains turn it into a horizontal because core finance functions like settlement, exchange and credit are now baked into the Internet.
One of the best examples of the impact of horizontal financial services is Axie Infinity players being able to borrow/lend their Axies in exchange for a cut of earnings. No lending platform partnership required. Financial services can be permissionlessly embedded in the gaming experience.
Another cool impact is it provides any online community, no matter the size, with tools to create an economy. An economy starter kit, if you will.
The Internet is an incredible horizontaling force. It is global, permissionless and industry agnostic.
Anything you put on top of it also becomes a horizontal.
The Metaverse is a horizontal too - virtual Internet space that transcends borders.
When you put financial services and the Metaverse together, you have a sandbox for an economy that adopts all the characteristics of the Internet - global, open and 24/7.
Horizontals can be incredible equalizing forces in the world. They eliminate a lot of geographical advantages/disadvantages. There are very clear advantages to being born in first world countries - education, access to professional opportunities and financial services. Maybe some of this evens out over time as blockchains and the Metaverse mature.
My hunch is people living in countries with less financial opportunity will be the first to migrate. They have more to gain, and many are willing to physically migrate for better opportunities. In the Metaverse, there’s no friction. You don’t need a plane ticket or a visa, just an Internet connection. People in first world countries like the US will be slower to migrate to these new economies at scale because there isn’t as much incentive.
Will the next generation even have a bank account? Definitely not in the same form we have today. I honestly think the next iteration of digital and social media platforms might be it.
With public blockchains and DeFi protocols, every app (web or mobile) will have the ability to embed financial services into it’s user experience. The one question mark is how regulation will impact integration.
Maybe someone will build an “economy-in-a-box” API suite (or maybe they already are) that can solve the regulatory issue for teams that don’t want to be regulated like a bank or Fintech.
What this also tells me is financial services regulation is going to change a lot over the next decade. A lot.
Thanks for reading,
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