In El Salvador, Bitcoin has become as legal as any other foreign currency, and the government has a plan for its digital currency called Chivo, which is slang for “cool” in the Central American country.
El Salvador’s plans for Bitcoin have been controversial, and there has been pushback. But the government's embrace stands in stark contrast to the situation in Australia.
Here, the Reserve Bank of Australia has examined the idea of a central bank digital currency and has passed on the idea for now, even as its peers in the region embrace it.
The RBA also seems determined to regulate and tax ventures such as Facebook’s entry into cryptocurrency, regardless of whether it’s called Libra or Diem.
Out in the private sector, Australia’s finance industry is dominated by the Big Four banks CBA, NAB, Westpac, and ANZ.
For some time, these banks have maintained that they want to partner with fintech companies, combining their scale with the new wave of ideas to drive innovation in financial services.
In reality, however, perhaps only Westpac has come close to matching its rhetoric. The bank set up a fintech venture capital subsidiary and invested in several promising startups.
It has invested in crypto exchange startup Coinbase. It is also partnering in perhaps the most significant blockchain initiative, R3, a collaboration with other banks that explores blockchain for offshore transactions.
The bank also has a blockchain startup with IBM and some commercial property companies around bank guarantees, but its stance has been mixed. In 2019, for example, it closed the AUD 1 million account of startup Rewards4U — a company developing stored value tokens from loyalty schemes — for no disclosed reason.
It may just be the pandemic disruptions, but the announcements from these blockchain ventures seem to have slowed down recently. It raises the question as to how fast this technology may practically be implemented at scale.
In the area of cryptocurrencies, the Australian banks have this week been called out by the fintech sector for their lack of action.
Just as the banks were pushed into investing in the New Payments Platform by the Reserve Bank, which took a stick to the banks when a carrot proved ineffective, now they stand accused of swimming against the crypto and blockchain tide and risking Australia missing a significant opportunity.
The Australian Senate is undertaking an inquiry into cryptocurrencies as part of its Select Committee Enquiry on Australia as a Technology and Financial Centre. It has emerged that the fintechs are complaining very loudly to the Senators about the banks, saying they are failing to provide critical payments services.
Wise, a U.K.-based transfer business, has had to partner with other international banks in Australia rather than the Big Four, who it says hardly returned the calls of executives.
Another U.K. fintech, Revolut, complains that its customers have been unable to make withdrawals from crypto accounts as in other markets.
“The crypto hesitancy of the Australian banks has meant that startup fintechs have arisen to fill the void and satisfy the consumer demand for crypto investment,” the Revolut submission to the inquiry said.
Meanwhile, local industry group Fintech Australia claims that 23 of its members have been “de-banked,” often without explanation.
The line from the banks is that it's all about risk and know your customer (KYC). But perhaps they are fearful that the disruption and disintermediation by the fintechs could come to pass.
Up until now, the prevailing wisdom has been that fintechs and banks need each other and would find a commonality of interest. Innovation would be the result, and the customer would be the winner.
The reality, it seems, is quite different with the banks accused of using the tactic of “de-banking” the fintechs to stifle their growth.
In another submission, Swyftx, an Australian cryptocurrency broker, called for regulation but in a manner that doesn't stifle innovation.
"The basis for traditional banks unwillingness to bank digital assets companies to date, which have relied on some arbitrary and ill-advised notion of 'increased risk' related to digital assets is no longer an acceptable or good faith approach and is beginning to look like anti-competitive behavior born of self-interest and at the expense of consumer confidence and protection," the Swyftx submission said.
The crypto fintechs say that Australia is missing a chance to be a world cryptocurrency and blockchain leader and a center for the industry.
Australia might not want to be the El Salvador of the Asia Pacific. Still, it appears that the banks have ignored the carrot of collaboration, leaving it up to the regulators to wield the big stick if blockchain and cryptocurrency innovation is to start moving down under.
Lachlan Colquhoun is the Australia and New Zealand correspondent for CDOTrends and DigitalWorkforceTrends, and the editor of NextGen Connectivity. His fascination is with how businesses are reinventing themselves through digital technology and collaborate with others to become completely new organizations. You can reach him at [email protected].
Image credit: iStockphoto/kinemero