CBA’s crypto currency move the tip of the iceberg

Commonwealth Bank of Australia’s revelation that it is testing “crypto currencies” for internal payments between subsidiaries is the first public recognition that movement of money in this country is going to be radically transformed.

Peer-to-peer payments using crypto currencies are a frightening prospect for the financial services industry because they threaten the existence of so many players who are simply there because of regulation or outdated approaches to money transfer.

Many participants in the financial services value chain are really leeches. They suck blood out of the system thanks to antiquated ways of doing business made redundant by the internet.

A real-life example of how those leeches will be burned off by disruptive technology is occurring right now in the Philippines. Thanks to its pre-eminence as a supplier of labour to the global economy Filipinos transfer about $US25 billion ($33 billion) a year in remittances home each year.

Banks and other financial intermediaries specialising in wire transfers have been clipping the meagre offshore earnings of Filipinos for years with fees equal to about 8 per cent of each transaction. Digital remittance payments from peer-to-peer threaten to destroy much of this lucrative business.

There are similar moves occurring in other jurisdictions to shake up traditional ways of paying for services. One of the most notable was the decision by Nasdaq OMX Group to allow companies and institutional investors to trade Bitcoin and other digital currencies.