Digitization of Assets Is Altering Companies' Competitive Advantages

Convenience has a new name: frictionless. Consumers are favoring companies that provide streamlined online buying experiences. Think Amazon's one-click purchase (perhaps the world's most frictionless checkout process) and Facebook's proposed Libra non-sovereign currency.

Digital, social and ecommerce are ushering an age of electronification of products and currencies. Of course there's political resistance to some of these fintech innovations — incumbents are using entrenched lobbyists to slow the pace of change. But companies want to mazimize customer satisfaction, which is the no. 1 priority for businesses from a sales standpoint, according to Salesforce's annual State of Sales report.

The digitization of tangible things includes fungible (e.g. gold) and non-fungible goods (e.g. artwork). The transformation of real assets to tokens is disrupting many sectors, including the $2 trillion global payments industry. This makes all types of properties more liquid, exchangeable and able to command the best prices from worldwide auctions. With added liquidity, asset owners may be able to shield themselves from inflation by obtaining non-inflationary payments like limited-quantity tokens, as well as stablecoins (a type of cryptocurrency) that are backed by gold, to name two examples.

In January, BrickMark made the biggest real estate deal ever purchased in tokens at nearly $136 million. The real estate investment company bought a commercial building in the middle of Zurich's business district by using BrickMark tokens.

Payment is "in the midst of significant disruption, in which new and redesigned business models pose competitive threats," according to McKinsey's "Global Payments 2018" report. "Even established firms ... may need to consider near-term transformation to ensure their position in the value chain."

That value chain is seeing challengers such as upgraded fintech infrastructure, which makes legacy practices vulnerable to new competitors. For example, the younger crowd is gradually moving away from traditional wire services that are expensive and take hours or days to settle. Only 14 percent of millennials think their primary bank helps them become financially healthy, per 2019 Pulse study. In short, your value chain must add more value than someone else's.

The rise of mobile ecommerce, which will reach $284 billion in the U.S. in 2020, is driving alternative payment solutions. Companies and consumers are continually exploring better ways to transfer value across borders. New players are introducing efficient solutions such as tap-and-pay (mobile), token transfers, immutable blockchain ledgers (Bitcoin) and smart contracts that govern transactions (BrickMark). These are advertised as frictionless transactions aimed at reducing or eliminating red tape. In practical terms, a sender wants to send money by swiping an iPhone knowing that a friend or family member will receive the funds securely in seconds or minutes. No questions asked.

Thus, established companies and financial institutions that built systems decades ago might operate networks that growing obsolete. The $81 million heist of the SWIFT clearing system back in 2016 also shows that hackers are growing in sophistication beyond a traditional system's security measures.

Frictionless economy

Despite global scale, consumers pay a lot to send money internationally: The same McKinsey report estimates revenue for payment companies at $45 per transaction (split between transaction fees and foreign exchange conversion). Average people who send small amounts overseas regularly are impacted the most.

The token economy aims to make the creation, buying and selling of digital assets frictionless. Aside from greater liquidity, other benefits include faster and cheaper transactions, transparency and better user experience. Fintech ventures are building systems that let users conduct frictionless transactions.

Last year, 40 percent of companies planned to invest at least $5 million in blockchain initiatives, according to a Deloitte survey. Half of respondents (53 percent) said blockchain has become a critical priority for their organization.

If incumbents stand still, fintech firms will continue to chip away at market share. Different organizations will need different strategies, but success will ultimately require improving the user journey and customer satisfaction. These days, consumers have extremely high expectations. You can thank Amazon's frictionless checkout for that.