Money over Internet Protocol (MoIP): who issues and regulates it?

I found a very interesting column on Forbes by Caitlin Long. She compares banking to the telco industry twenty-five years ago, and that the big telecoms firms all went bankrupt because they didn’t predict or see the impact of VoIP (Voice over Internet Protocol). I really enjoyed the article but, at the same time, found it slightly challenging and frustrating, for a reason that I find with most people who write about banking and finance.

Caitlin’s view is that banking is currently being disrupted in the same way as telcos were in the 1990s.

When Voice-Over-Internet-Protocol (VOIP) was invented in 1995, most people disparaged it as a technology that couldn’t scale and wasn’t a threat to the telecom giants. Then, circa 2003, the technology to scale VOIP arrived – broadband – and within a flash, most of the telecom industry’s copper-wire networks became obsolete. Useless relics.

That much is true. I was working for NCR back then, a subsidiary of AT&T, and remember the AT&T folks believing the changes weren’t relevant. Now that’s a story. Nevertheless, I disagreed with the sentiment of Caitlin’s article.

Anyone in the world can become members of these emerging payment networks in the span of a few hours, using equipment that costs a few hundred dollars. Banks’ IT systems will never be able to compete with that.

Really?

If this is true, it would have happened years ago. All the fintechs in the world haven’t destroyed or disrupted banks. In fact, I would claim any start-up that wants to replace a bank will fail. What start-ups need to do is augment and amplify banks, renovate and renew their processes, simplify and solve their technology issues. Don’t try to disrupt and destroy them, as you’ll fail.

So far, that’s proven to be true for the majority of start-ups. Can you name any that has replaced a leading bank in any country? You might then say not yet, and tomorrow the one you wanted to name has been acquired by a big bank that’s been around for three hundred years.

The thing Caitlin, and most others miss here, is that big banks are big banks protected by high levels of regulation. Unlike a telco, retailer or similar firm, it matters when things go wrong. After all, banks are as important to governments as the brain is important to your body. If it’s not working, you cease to exist. This is why governments protect banks and banking more than any other industry. They are kind of up there with airlines and pharmaceuticals.

When people might die, governments take notice. When economies might die, governments take notice. When industries can kill people or economies, they are far more focused upon than those that might lose an order or drop a phone call.

That’s why, since records began, no big bank has been destroyed by tech. They just get bigger and, when threatened by tech, they take it out through acquisition or repetition.

Nevertheless, I do like Caitlin’s nomination of MoIP – Money over Internet Protocol – as a thing (sssch ... it's a Pagseguro thing). The question it leaves in my own mind is: who issues and regulates MoIP?