As we have gone through every iteration of the internet (Web 1, Web 2, Web 3), there have always been bridges. Without these bridges, built by “fixers,” there is no mass adoption, and Web 3 is no different; we need “fixers.” We need Web2.5 (more on this later).
Our story starts on 6 August 1991 when the first webpage was launched, and everything changed. As the World Wide Web turns 31, we track how far banking and payments have come since the dial-up days of Web 1. We consider what it means to be more connected and social in today’s Web 2 and look to the possible decentralized futures of Web 3.
Web 1 – The birth of online banking and payments
Before the internet, it seemed that the way banks did business had barely changed in years, centuries even. The same few firms dominated. New entrants were modest, partly because banking was surrounded by a moat. Regulation, complex legacy infrastructure and many technological interdependencies made it hard to innovate in isolation.
The large overheads of running a physical branch network made it hard to cut costs quickly. And training hundreds of customer-facing staff made it hard to roll out new products quickly. No wonder that innovation was incremental, and that products and services were similar to each other and to what they had always been. Paul Volcker, former chair of the US Federal Reserve, was only half-joking when he said in 2009 that the ATM had been the only useful innovation in banking in the last 20 years.
When Web 1 emerged in the 1990s, it consisted of static, read-only web pages and basic e-commerce. Bank websites were rudimentary, often just there to display brochures. E-commerce websites were not much better, with catalogues of goods and clunky or offline payment experiences.
Web 1 fixer – The digital wallet goes mainstream
There was general skepticism about the value of online banking and payments among banks and customers. It cost too much, was difficult, not safe and there was no real need. Then came the fixer.
“Paper money is an ancient technology. You can run out of it. It wears out. It can get lost or stolen. In the twenty-first century, people need a form of money that’s more convenient and secure, something that can be accessed from anywhere with an internet connection.” With these words, Peter Thiel launched PayPal, the online payment system that changed the way the world does business.
Four years later in 2002, eBay bought PayPal for $1.5 billion. Today it’s worth around $115 billion. The digital wallet went mainstream. And Thiel’s words inspired new thinking about the digital economy during the first-generation web of the late 1990s – and beyond.
Web 2 – The rise of frictionless and embedded payments
From the mid-2000s, banking and payments moved from purely physical transactions in bank branches and shops to e-commerce and mobile commerce. More recently, the Covid-19 pandemic dramatically accelerated existing trends, boosting the shift from ‘bricks to clicks’ by around five years. Initially, some banks and firms saw digital as a new way to automate old processes to cut costs. Or as a new channel through which to distribute old products.
They took the legacy world and tried to make it better with technology. Meanwhile, others were re-thinking how to do banking and payments in a digital and increasingly mobile world. This included simplified sign-up, better credit scoring, instant loans, real-time cross-border payments almost for free, and digitalized micro-services. Frictionless payments went mainstream, and Uber became the poster child of the invisible payment experience.
At the end of a ride, the passenger just got out of the cab. That’s it. Payment happened in the background and the passenger’s last memory was the ease and convenience of taking an Uber. To build these embedded experiences and digital-first financial products, providers needed better access to technology capabilities and platforms. This in turn made it more economical for them to offer easy, lower-cost products and services, improving access to financial services, particularly for the un- or under-banked.
Web 2 fixers – As-a-service components and collaboration
Rather than a specific product, the fixers to Web 2 were advances in back-end technology and partnerships. This was the era of the API economy; faster broadband, the proliferation of smartphones, better 4G and 5G coverage and cloud. This enabled the fixers, infrastructure players, the ‘plumbers’, to improve the connectivity, speed and reach of the internet.
Yet the ability of financial services firms to take advantage of technological change depended on starting points as much as strategies. It was easier to create everything from scratch rather than to take an existing business model and make it work in a new world.
Fintech start-ups often began with blank slates. They built Lego-like solutions using various off-the-shelf and as-a-service components, which dramatically reduced the cost, complexity and time to market. Fintechs also started to use real-time data, different data points and initiatives like Open Banking to unlock financial services access to wider demographics. Fintech exploded!
Yet, while banks had disadvantages relative to start-ups, they also had advantages. Being regulated was a huge compliance overhead but generated customer confidence and market credibility. A long history brought with it legacy systems, but also strengthened trusted brands and provided historic data at scale and a deep understanding of the risks involved.
Consequently, rather than competition, banks and fintechs tried collaboration and co-opetition. The win-win achieved through engaging in a mutually beneficial way defines the general relationship between banks, fintechs and crypto-friendly banks and crypto platforms today.
Web 3 – Decentralization for a more democratized, resilient and inclusive internet
Web 3 is emerging as a reaction to Web 2 with its large-scale search, shopping and entertainment platforms. Web 2 owned and operated by private companies, with business models centered on tracking and monetizing user data in exchange for providing seemingly ‘free’ services.
Web 3 promises a better, more decentralized internet with countless interoperable platforms. A group of technologies, including digital assets, decentralized finance (DeFi), blockchains, tokens riding on those blockchains, and decentralized autonomous organizations (DAOs), will enable new forms of collaboration.
Web 3 will include more people, for example, those Web 2 left behind because they didn’t have bank accounts or lived in countries deemed ‘high risk’ by traditional financial services. Paradoxically, and not many people see this yet, but Web 3 will renew trust in institutions, improve governance, auditability and participation. It will enable people to take control of their digital lives through new ways of generating and retaining value.
However, until crypto becomes a legal tender, not just a speculative asset, individuals will still need to cross the bridge from fiat into the crypto economy. Crypto is often touted as the Wild West, where KYC and AML are foreign concepts. This has changed somewhat recently with the more mature crypto platforms attempting self-regulation and with upcoming regulation like MICA bringing some much-needed clarity to the space.
Web 3 fixer – Web 2.5, a trusted bridge to the future
At the end of 2021, 300 million people had a crypto token. That’s still only 4% of the world’s population, so there’s huge opportunity for growth. However, Web 3 needs fiat and traditional fiat players like banks to become mainstream. Fiat is, and is going to remain for years, the entry point to crypto as well as the exit point from crypto. Yet banks and crypto platforms don’t always speak the same language.
Fiat Republic lives at the intersection of banking and crypto. We exist to fix the broken link between these two financial powerhouses and help Web 3 go mainstream by fostering mutual trust and transparency, through a common language of compliance. Web 2.5 is designed to bring down borders that isolate the ecosystems.
Too many crypto platforms are currently stuck at the border of Web 2, often marginalized by the banks, due to a lack of information, transparency and data. This, in turn, leads to banks not trusting crypto platforms. Think of Web 2.5 as the compliant connective tissue between crypto platforms and banks, facilitating trusted money flows and seamlessly bridging the Web 2 and Web 3 worlds to drive mass adoption of Web 3.
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