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Does Fintech create monopolies or does it destroy them?

The advantages that fintech brings to the industry cannot be taken lightly, especially after we’ve seen so many traditional companies switch to this new understanding.

In the past, there was absolutely nothing that could challenge traditional finances. The bank was the only place where you could possibly store your cash, and hope for some kind of return for the future. In fact, the whole idea of cash itself has changed thanks to financial technologies.

Nobody is forced to carry the paper banknotes any more thanks to innovations like online banking, plastic cards and etc, but the world was not poised to stop developing there.

Today we have the luxury of using alternatives to cash, such as cryptocurrencies, which on their own, have brought much more challenged to traditional companies than they could have hoped for.

The removal of middlemen

Let’s focus a little bit on cryptocurrencies for now as they have the biggest chance of undermining monopolies in the financial sector.

The first example of the monopoly that Fintech in the form of cryptos can disrupt is the middlemen for transfers.

Imagine that almost everybody in the world is using cryptocurrencies on a daily basis for international transfers and etc. What would happen to companies like Visa or MasterCard? They’d lose a huge market share to a decentralized network, which would most definitely provide a much better value to the user base.

Right now, making any type of transaction using the Visa and MasterCard services comes with a huge commission, while cryptocurrencies can handle the same, if not larger transactions with just minuscule amounts, but that much is still being developed.

Right now, the sole goal of the crypto industry is to minimize the fees on transactions to a point where minuscule amounts can be easily moved back and forth.

Once this is achieved and crypto adoption spreads all across the world, Visa and MasterCard will have to start worrying. In fact, Visa has already showcased its concerns with crypto by joining the Libra association.

Disrupting state-run monopolies

Another advantage that cryptocurrencies and fintech, in general, have brought to the global public is the opportunity to somehow avoid state-run monopolies.

These monopolies are usually industries in which the government prohibits any private company to participate in. These could be natural resources, public transportation or just various goods and services.

Naturally though, for things like transportation and natural resources, cryptocurrencies would not be effective as they’re mostly designed for purchase and a means of payment rather than production.

However, when it comes to services, that’s a completely different segment where cryptos excel.

One example of a state-run monopoly is in Finland, where the government controls the whole market share of the gaming industry.

The tool that the government uses is a company called Veikkaus that has control over all of the gaming segments. Things like betting, lotteries, and scratchcards are manufactured and sold by the government essentially.

Everything else, such as online versions of this industry or any offline location is banned across the country, thus forcing the local population to participate with Veikkaus and force themselves down a path that is already less advantageous for them.

Why? Because there is no presence of competition, thus it’s not within the interests of Veikkaus to provide better quality service or products to its customers. The sole reason for this monopoly is to divert people from taking part in the activity, but all it does is force people to find alternative ways online.

In fact, according to Сasinopånett EU, the monopoly got so big and “unethical” that the sentiment of the population changed extremely quickly within just four months. A new survey was conducted that saw almost 55% of interviewees call the government operations in the gaming industry nothing but a cash-grab and dominance over the market.

Several interviewees also mentioned that they simply use cryptocurrencies in conjunction with VPN services in order to avoid any type of firewall in the country, and are still able to get much better services with all the added cost.

This is a perfect display of what cryptocurrencies help people avoid and stay on the more affordable and value-based side in the long run.

There are other examples such as the microcredit companies that manipulate interest rates, but definitely not on a scale that compares to government-owned monopolies.

Does crypto create monopolies though?

There are also issues with cryptocurrencies not supporting traditional monopolies, but creating new ones for themselves.

One such “probability” is derived from data gathered in South Korea, which will all know is a big hub for all projects crypto.

According to this data, which is admittedly not yet confirmed, around 97% of crypto exchanges located in the country are at the brink of bankruptcy due to low trading volumes.

We all know that trading volume is basically how the exchange makes money through spreads and commissions, but at the brink of bankruptcy is a bit odd.

How did this happen though? Was it through individuals or through the market?

Honestly, it mostly seems like the market correcting itself. At this point, cryptos have been a part of way too many controversies, such as scams and hacks.

Therefore, investors prefer to trade on a platform that has a global presence, has the largest consumer base, and subsequently devotes a lot of time and research to the coins they list on their platforms.

Exchanges like Binance, OKEx, Coinbase and all the other ones that you usually see in the headlines spring to mind.

Having a large chunk of the crypto community hold accounts on these platforms is no surprise, as almost every new crypto project dreams of being listed with them.

This creates a bottleneck for new exchanges, where they have to spend a lot of time and money in order to convince project owners to list their coins on these new exchanges, as well as millions on marketing and PR in order to convince the investors to switch over to their sides.

At this point, smaller exchanges were advantageous due to their ability to list “exotic” crypto pairs, but large exchanges are slowly catching up.

The other advantage was the leverage that small exchanges could offer, but we’ve already seen Binance take that step in 2019.

Overall, it feels like we’re in the middle of a crypto monopoly in the making, but a truly decentralized market corrects itself one way or another.

All it takes is a very useful product to simply say no to a large exchange, and find its way on smaller exchanges, which is not so simple in the traditional markets so to speak.

Overall, it’s easy to say that Fintech has its advantages of disrupting monopolies through sheer added value for the end consumer. But that added value could indeed spiral into a monopoly in itself, as long as people are ready to spend enough on a new venture. And enough, at this point, means billions upon billions of dollars.




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