The world’s banking payment system is going to be tokenized on a blockchain, according to the head of Goldman Sachs. In a discussion of Facebook’s new Libra cryptocurrency with the French news site Les Echo on June 28, Goldman Sachs CEO David Solomon said he finds the “principle interesting” and the fifth-largest American bank, does “extensive research on the concept of tokenization.”
“This is the direction where the system of payments is headed,” he added, noting that his company believes in the potential of a “stable digital currency based on a basket of real currencies that can move money across borders and without friction.”
Solomon added that one should “[a]ssume that all major financial institutions around the world are looking at the potential of ‘tokenization,’ ‘stable coins,’ and frictionless payments.”
Solomon would not comment on whether Goldman Sachs has even talked to Facebook about Libra, to say nothing of whether the bank would join the project.
“Whether it’s this platform or one of the other fifty that people are watching that will make the most progress, I can’t tell you,” said Solomon, noting that Facebook COO Sheryl Sandberg made clear that the social media giant’s Libra project is still very far from a launch. “[I]t’s too early to say which platform will win out.”
Addressing the concern that giant technology firms like Facebook, Google, and Apple have the size, financial strength, and technical know-how to steal banks customers with burgeoning payment systems such as Apple Pay and Google Pay, Solomon said he wasn’t too worried.
“I don’t think banks will disappear because of that,” he said. “Admittedly, they’ll have to evolve because trades linked to payment flows will become less profitable.”
While these tech companies “have a lot of customers and will certainly try to monetize them,” Solomon said he believed they have a long way to go before they can dislodge banks.
To do that, said Solomon, tech giants “will have to gain the trust of customers on big fundamental questions in terms of risk management, of financing capacity.”
Trust is the key word there, as the Facebook Libra project’s biggest problem is skepticism of its motives and good faith by regulators and elected officials. The company is involved in a variety of scandals in the U.S. and Europe over misuse of customers’ private data.
Beyond that, tech companies have a long history of hostility to regulation that won’t fly in banking. “Do you think that tech giants, who have other things to worry about at the moment, want to submit to the same regulatory constraints as JP Morgan or Goldman Sachs? But it seems to me they will try to seal partnerships with banks rather than become banks themselves.”
Solomon pointed to his bank’s March partnership with Apple on its new credit card as a more likely example of what is to come.