In the past few months, a major event in the blockchain industry has been the collaboration of IBM's Stellar to launch a cross-border cross-border money transfer business, World Wire. This business is based on Stellar's blockchain technology, enabling compliant financial institutions in which countries participate to transfer money between different laws. Given Stellar's peer-to-peer clearing model and its low cost of use, this service will significantly reduce the transfer costs between different legal currencies, so both service providers and service users in this business will be compared. Good income. This service is also a direct challenge to SWIFT, which has long monopolized this business. Given the huge market for cross-border transfers, the financial institutions joining World Wire will get very good revenue from this business. As a provider of this service, IBM will also receive consistent and stable business benefits.
IBM's World Wire is undoubtedly a successful case of putting blockchain technology in the real financial arena. This practical application is also the best endorsement of the Stellar technology system. While the industry is paying attention to the success of the two partnerships, the industry almost forgot that the company that first started supporting Stellar was not IBM, but Stripe. When the Stellar Foundation was first established in 2014, Stripe invested $3 million in the Stellar Foundation in the form of a Stellar token. This is a very strong support for a newly established non-profit foundation. Since then, Stripe has been discussing with Stellar how to apply the Stellar technology system to the payment business. However, it is clear that the cooperation between the two has not produced actual application. IBM started working with Stellar in 2017. Two years later, the actual landing application was launched.
Both Stripe and IBM are based on the same underlying technology, but the results of their exploration applications are completely different. This completely different result deserves serious consideration by practitioners in the industry in order to better apply the new technology to the market.
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1. Why is Stripe not based on Stellar?
Stripe recognized the potential value of Stellar in 2014 and is willing to invest $3 million to support the development of this technology. This undoubtedly shows the vision of the founder of Stripe. Stripe is also a very strange startup. Its founder is a brother from the Irish countryside. They were studying at Harvard and MIT respectively. In 2010, because they were dissatisfied with the convenience of online payment, they started to develop solutions for online payment. Their ideas are funded by Y Combinator. The brothers dropped out of school and set up Stripe to focus on online payment solutions. In the years that followed, Stripe continued to grow and was therefore supported by capital. So in 2014, although Stripe was just a startup that had just been established for 4 years, because of their high optimism about the value of Stellar, it invested $3 million to support Stellar's technology development.
Stripe apparently wants to apply Stellar's peer-to-peer payment clearing system to its online payment business in the US market. If the direct transfer settlement between the account and the account can be realized, the online payment can avoid the clearing network between the banks. The clearing cost of this payment process can therefore be saved, so the transaction costs of both parties to the payment transaction will be reduced, and both parties will benefit. Given the huge volume of transactions paid, the opportunities in this market are clearly very large. So why did this collaboration between Stripe and Stellar not achieve this original intention? I think there may be the following reasons.
First, Stellar's performance is still not comparable to the processing speed of existing clearing networks. Although Stellar is one of the fastest bookkeeping credits in the market, its billing speed is far from being comparable to current centralized system-based processing speeds. One of the most critical factors in the payment business is processing speed. If Stellar can't achieve satisfactory results in this regard, then it can't be applied to the payment business.
Second, in the market structure of existing payment services, all systems, processes, and regulations are based on centralized accounting techniques. If a centralized accounting method is used to replace the centralized accounting method, then this means that all aspects of the market must be changed accordingly. The cost of this change is huge. This situation is not only in the banking sector, but also in the securities business.
In 2016, when the value of blockchain technology was just recognized by the industry, the market's consensus on its application in the securities industry was the liquidation of securities after the transaction. Post-trade clearing based on distributed accounting techniques can solve many of the disadvantages of centralized clearing systems such as inefficiency and high cost. So at that time, there was a high-profile startup that focused on providing solutions in this area. It is Digital Asset Holdings in the US and SETL in Europe. Although the two companies have achieved great results in the past few years, their development is still full of twists and turns. This is because the clearing system is the basic guarantee for the stable operation of the securities industry. The stable operation of the securities industry is an important factor in the stable operation of the entire society. Now if you fundamentally change this clearing system, the costs and risks involved can be imagined. So whether in the securities industry or in the banking industry, changing the clearing system is a very challenging job, basically Mission Impossible.
Third, even if such a replacement is technically flawless, the benefits it generates are not necessarily worth doing. Now when the user makes a payment with a bank debit card, the payment service is basically free. This is because the bank is able to use the other deposits carried out by the user's deposits to obtain sufficient income, which fully covers the cost of the bank's payment services. A centralized clearing network that replaces existing bank cards based on blockchain technology does not yield more significant benefits. The two parties making the payment therefore do not have a strong incentive to adopt this new method of liquidation.
There is an opportunity to replace the credit card clearing network based on blockchain technology. Because the credit card charge to the merchant for 3% of the service fee is still a savings. However, the main problem in this area is that users use habits rather than technical ones.
In addition, whether it is a clearing network between banks or a credit card company's clearing network, they are fully exploiting the potential of centralized technology to provide better services to the market. For example, there is now a real-time transfer settlement service, which is an improvement over the initial clearing and settlement service on the next day. The level of satisfaction of users who use the payment transfer service has naturally increased.
Fourth, Stripe did not find a suitable business entry point. Replacing a centralized clearing network with a distributed clearing network, the benefits of this replacement are obvious. However, due to the irrational structure of the current market, the centralized clearing network is supported by various other factors, so its status is difficult to shake. If you want to replace the centralized clearing network with a distributed clearing network, you must find a suitable entry point to constantly divide and disintegrate the existing resistance. Such entry points may be obvious pain points in the existing market, or they may be new opportunities brought about by the development of technology and business models.
If we look at IBM's collaboration with Stellar from the above dimensions, then it's easy to understand why it's based on the same technology, but IBM is the first to implement the application.
Second, why did IBM take the lead in developing applications based on Stellar?
First of all, the current cross-border transfer business is a pain point in the market, and there are business opportunities. That's why Facebook plans to apply its stable currency business first in the field of cross-border transfers. Based on IBM's World Wire service, banks that participate in the transfer can get a reasonable profit and form a win-win situation. Therefore, many parties involved are willing to contribute to this cooperation.
Second, because World Wire supports cross-border money transfer services between different currencies, its technical performance requirements are far less than the requirements of the US domestic payment market. Today's cross-border transfer business needs at least one day to complete. If the participating bank is not a direct member of SWIFT, then the transfer will take longer. The Stellar-based transfer business is basically done in real time, so it outperforms existing solutions. In terms of processing costs, Stellar-based transfer business can process 600,000 transactions in one cent. This cost is obviously very competitive.
Third, the cross-border transfer business application scenario needs to be completed by banks in various countries, and such an application scenario is the best application scenario of the blockchain technology. In addition, IBM is a system integrator, not a bank. It is a cooperative relationship with banks in various countries in terms of business nature, not a competitive relationship between them. Clearing networks between different currencies led by IBM are easily supported by banks.
Third, give us inspiration
Stripe, IBM's collaboration with Stellar led to different results. This is very worth learning from the participants in the industry. Some of these revelations are in the classic business strategy, and others are specific to blockchain-based applications.
First of all, the superiority of technology does not directly guarantee the successful application of the application. In terms of landing applications, the business model is more important than the technology itself. Stellar's collaboration with IBM and IBM is a good example of this.
Second, don't attack the enemy's strongest place. Domestic payments in the United States can be said to be the most developed place. Payment services have become the foundation of American economic life. Therefore, to achieve some breakthroughs in this aspect, we will face strong resistance in all aspects. For Stripe, fortunately, its actions in this area have been in the research stage, and there is no real application.
Third, we must find application scenarios that require multi-party cooperation. This is the best application scenario for blockchain technology. And this multitude must be independent of each other and not fully trust each other. Another such scenario is trade finance. Trade finance requires multiple types of institutions to participate in a single business. And only if the cooperation is successful, the parties can benefit from it.
Finally, be sure to find a competent partner. A good partner is not as easy to find as a spouse. But once found, the common cause will leap forward to achieve long-term stable development. Stellar Without the cooperation with IBM, it is impossible to get the cooperation of compliant financial institutions that can provide cross-border remittance services in various countries. A few decades ago, an unknown small software company developed into Microsoft today through cooperation with IBM. Now, IBM seems to be helping to make another Microsoft.
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