Boom and bust, bust and boom. The cycles of the economy are eternal, and new technologies and sectors are continually arising to disrupt the old, become the new paradigm, and succumb to disruption themselves. The nature of the disruption changes, but the mechanism stays the same — nothing is eternal, and a business that doesn’t recognise that is built on a foundation of sand.
That said, the beginning of a disruption is a delicate time, especially with technology. Many promising technologies have fallen by the wayside because they missed their window of adoption — does anyone remember Betamax? If a company can’t establish itself in the business ecosystem, it will die — even if the product is superior.
The term “new digital economy” covers a wide range of sectors, all loosely grouped around being the product of digitalization and the ubiquity of the internet ecosystem. Some of its flagship businesses like Uber and Airbnb have become behemoths, disrupting their industries and championing change. They have faced challenges, of course, as they find their place in the regulatory and economic landscape, but they aren’t going anywhere now. Other sectors in the new digital economy face institutional stumbling blocks that can prevent them from ever being competitive, and this endangers the benefits their technology could bring.
Funding vs. support
Many investors — both institutional and private — want to invest in the new digital economy. After all, the potential is massive. However, investment isn’t the only determinant condition for success — businesses need institutional support, as well. If investment is the water and fertiliser a business needs to grow, institutional support is the soil it’s planted in. No matter what the investors do, it’s the institutions like regulators, governments, and banks that determine if a startup has a chance.
Unless a business idea isillegal, regulatory and governmental interference usually doesn’t happen until it has a measure of traction and is able to push for institutional change or pivot its business model. However, when the obstacle comes from the banking sector, there’s little a business can do… after all, investment money means nothing without an account to put it in. Unfortunately, this is an issue facing many promising projects in the fintech, crypto and blockchain spaces, as they are refused banking services or even unbanked by their current provider.
Whether this is a function of institutional inertia in the face of new business models or protectionism is debatable, but the fact remains that businesses working in the sectors closest to the financial industry have the hardest time accessing their services — and a business simply cannot function without corporate banking.
Banking on the future
In many ways, this presents a catch-22: fintech, crypto and blockchain projects that have the potential to change how we manage money and transact value are unable to realize their goals because they cannot get the banking support they need to become a functioning business. If this is protectionism, it’s short sighted — after all, greater efficiencies tend to create greater profits — and if not, it’s the wilful disregard for potential profit and a loyal client base.
Thankfully, this situation is changing. More banks are recognising the service gap and moving to fill it, and new banking institutions are being founded. One of these is INITIUM Group, a new multi-jurisdictional banking group targeting the underbanked players of the new digital economy specifically. Daniel Spier, CEO and founder of INITIUM summed up the situation, and his rationale for founding the bank concisely: “There’s a big gap in services here caused by the traditional banks’ legacy processes. We’ve got the luxury of starting from a blank slate to integrate their best practices with new technologies, which means we can serve the sector effectively while we build a profitable new bank group.”
Soon, the service gap will be filled, and we can start to realise the real potential of the new digital economy. Daniel expects INITIUM to have its first banking license in Liechtenstein by Q1 2020, and will expand to cover Switzerland, the EU, Israel and Asia later in 2020.