Take Alipay, for example, covered in a recent Bloomberg report. It’s amassing client deposits in the hundreds of billions of dollars with its popular payment app. It’s leaving bankers out of the loop, not giving them a cut in the transactions. And it’s been very successful. So people wonder: “Who’s profiting from all this?” I’ll tell you who: It’s companies like Apple, Google and an affiliate of China’s Alibaba Group Holding BABA 1.82%, which owns and manages Alipay. Alipay amasses its customers’ deposits. It invests the money in short-term money markets. It even makes loans to consumers. So, the financial media says it’s one of the “great financial innovations” of our time; the “leading edge of financial technology (Fintech).

Really? 

Sounds just like a traditional bank to me. Remember: A bank is simply an institution that takes deposits from the public and then invests or lends that money out at a higher rate. And guess what? That’s precisely what some of these so-called “revolutionary” Fintech companies are doing. As with banks, once you make a deposit, you have no say over what’s done with your money. Nor is the money kept in the institution’s vaults available for withdrawal by all. 

It’s fractional banking, meaning your money isn’t really there. At the end of the day, all you have is a chit — a claim to the money you deposited. I repeat: Alipay uses essentially the same business model … In fact, it is one of the world’s most successful Fintech companies in this sector. Heck, until China's central bank changed the rules, Alipay was serving about half of all the country’s small- and medium-sized companies, according to Bloomberg. Now they’re required to hold cash reserves with the central bank. Again, just like traditional banks. There is NO substantive difference between a traditional bank and a payment app such as Alipay. They work the same way.

But that’s not the big problem. 

What really worries me is that both Fintech companies like Alibaba and traditional banks share the same flaw: You’re required to entrust your money to a third party, and it’s this third party that actually controls it. Not you.

Most people argue that the difference between a bank and a Fintech company is that, with Fintechs, the assets and payments are digital. Also not true. Nearly all the money you have in a bank account is also digitized. Here’s the real problem with today’s financial system: A vast network of intermediaries stands between you and your money. And the new Fintech companies have done zilch to disrupt this critical aspect of the system. All they’ve done is to create a more efficient digital network and undercut obscenely high bank transaction fees. The business model of these Fintechs is simply to beat traditional banks at their own game. They are not revolutionizing the financial system. Not even close. 

The only invention with the potential to truly disrupt traditional banks is Distributed Ledger Technology (DLT), the basis for cryptocurrencies like Bitcoin. And the major innovation Bitcoin — like other crypto assets — brings to the table is not just a fully digital payment system. (Alipay, PayPal Inc PYPL 2.01% and Facebook Inc's FB 2.98% upcoming GlobalCoin do that as well.) Rather, it’s decentralization. In fact, the digitalization and decentralization of crypto assets are a means to an end. The goal is to create a technology that — unlike your deposits at a bank or Fintech company — when you own a crypto asset in your wallet, you’re the ONLY one who controls it. There are absolutely no intermediaries between you and your money.

Indeed, owning crypto assets is akin to holding gold bullion bars or coins. As long as you store your crypto in a wallet you own, nobody has access to it other than you. Traditional banks and their new Fintech competitors have final say over what happens with your money. With cryptocurrencies, you’re the only one who makes those decisions. That’s the real innovation. And that’s why cryptocurrencies are likely to challenge — and ultimately overtake — the likes of Apple Pay or Alipay. Think of it this way, Fintech companies are the same old trains trying to run on digital rails. Bitcoin and other cryptocurrencies are the infrastructures for an entirely new financial system.

Article Produced By
Weiss Crypto

A Benzinga Contributor

https://www.benzinga.com/markets/cryptocurrency/19/06/13883184/bitcoin-vs-apple-pay-and-alipay

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