Stripe, what IBM and Stellar have taught us
Editor's Note: This article comes fromGu Yanxi, published with permission.
Editor's Note: This article comes from
Gu Yanxi
In the past few months, a major event in the blockchain industry has been IBM's Stellar partnership to jointly launch a cross-border cross-border transfer business, World Wire. This business is based on Stellar's blockchain technology, enabling participating compliant financial institutions in various countries to conduct transfers between different laws. In view of Stellar's point-to-point clearing model and its low-cost usage fees, this service will greatly reduce the current transfer costs between different fiat currencies, so that both service providers and service users in this business will be compared good earnings. This service is also a direct challenge to SWIFT, which has monopolized this business for a long time. In view of the huge market of international money transfer business, financial institutions joining World Wire will get very good benefits from this business. As a provider of this service, IBM will therefore obtain continuous and stable business benefits.
IBM's World Wire is undoubtedly a successful case of implementing blockchain technology in the actual financial field. This practical application is also the best endorsement of the Stellar technology system. While the industry is paying attention to the success of the cooperation between the two, the industry has almost forgotten 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 by purchasing Stellar tokens. This is a very strong support for a newly formed non-profit foundation. Since then, Stripe has also 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 did not produce practical landing applications later. IBM only started working with Stellar in 2017. Two years later, the actual landing application was launched.
Stripe and IBM are both 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 so that they can better apply new technologies to the market.
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1. Why Stripe didn't launch products based on Stellar
Stripe recognized the potential huge value of Stellar in 2014, so it is willing to invest $3 million to support the development of this technology. This certainly shows the vision of Stripe's founders. Stripe is also a very peculiar startup. Its founders were two brothers from rural Ireland. They were studying at Harvard and MIT respectively. In 2010, because they were dissatisfied with the convenience of online payment, they began to develop online payment solutions by themselves. Their idea was funded by Y Combinator. As a result, the brothers dropped out of school and founded the Stripe company, focusing on online payment solutions. In the ensuing years, Stripe continued to develop, and thus continued to receive capital support. So in 2014, although Stripe was only a four-year-old start-up company, they invested $3 million to support Stellar's technology development because they were highly optimistic about the value of Stellar.
Stripe obviously hopes 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 accounts can be realized, then the online payment can avoid the clearing network between banks. Therefore, the clearing cost in the payment process can be saved, then the transaction cost of the payment transaction parties will be reduced, and the transaction parties will benefit. Given the sheer volume of payments, the opportunity in this market is clearly enormous. So, why didn't the original intention of this kind of cooperation between Stripe and Stellar come true? I think there may be the following reasons.
First of all, the performance of Stellar is still not comparable to the processing speed of the existing clearing network. Although Stellar is one of the fastest bookkeeping speeds in the existing public chains in the market, its bookkeeping speed is still far from the processing speed of the current centralized system. One of the most critical factors in the payments business is processing speed. If Stellar cannot achieve satisfactory results in this regard, then it cannot be practically applied to the payment business.
Second, in the existing market structure of payment business, all systems, processes and regulations are formulated based on centralized bookkeeping technology. If a distributed bookkeeping method is used to replace the centralized bookkeeping method, then this means that all aspects of the market must be changed accordingly. The cost of this change is enormous. This situation is not only in the banking field, but also in the securities business field.
In 2016, when the value of blockchain technology was just recognized by the industry, the market consensus on its application in the securities industry was the post-trade liquidation of securities. Post-trade liquidation based on distributed ledger technology can solve many disadvantages of the centralized liquidation system such as low efficiency and high cost. So at that time, high-profile startups focused on providing solutions in this area emerged. In the US it is Digital Asset Holdings and in Europe it is SETL. Although these 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 for the stable operation of the whole society. Now if this clearing system is fundamentally changed, the costs and risks involved can be imagined. Therefore, no matter in the securities industry or in the banking industry, changing the clearing system is a very challenging job, which is basically Mission Impossible.
Third, even if such a replacement is technically sound, the benefits it generates may not be worth it. Now when a user pays with a bank debit card, the payment business is basically free. This is because the bank can use the user's deposit to carry out other banking business to obtain enough income, which can fully cover the cost of the bank's payment service. Replacing the existing centralized clearing network of bank cards based on blockchain technology cannot produce more obvious benefits. The two parties making the payment therefore do not have a strong incentive to adopt this new settlement method.
In addition, whether it is the clearing network between banks or the clearing network of credit card companies, they are fully tapping the potential of centralized technology in order to provide better services to the market. For example, there is now a real-time transfer and settlement service, which is an improvement over the initial next-day clearing and settlement service. The level of satisfaction of users using payment transfer services is thus naturally increased.
Fourth, Stripe did not find a suitable business entry point. The benefits of replacing the centralized clearing network with a distributed clearing network are obvious. However, due to the unreasonable current market structure and the support of various other factors based on the centralized clearing network, its position 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 continuously differentiate and disintegrate the existing resistance. Such an entry point may be an obvious pain point in the existing market, or it may be a new opportunity brought about by the development of technology and business model.
If we look at the cooperation between IBM and Stellar from the above dimensions, we can easily understand why they are all based on the same technology, but IBM took the lead in implementing the application.
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First of all, the current cross-border transfer business is a pain point in the market, and there are business opportunities. This is why Facebook plans to apply its stable currency business to the field of cross-border transfers first. Based on this service of IBM's World Wire, the banks participating in the transfer can obtain reasonable profits, which will form a win-win situation for multiple parties. Therefore, many parties involved are willing to facilitate the realization of this cooperation.
Secondly, since World Wire supports cross-border transfer services between different currencies, its technical performance requirements are much smaller than those of the US domestic payment market. The current cross-border transfer business takes at least one day to complete. This transfer takes longer if the participating banks are not direct members of SWIFT. The transfer business based on Stellar is basically completed in real time, so it is much better than the existing solutions. In terms of processing costs, a Stellar-based money transfer business can process 600,000 transactions for a penny. Such costs are obviously very competitive.
Third, the application scenario of cross-border transfer business requires the cooperation of banks in various countries to complete, and such an application scenario is the best application scenario of blockchain technology. Also, IBM is a systems integrator, not a bank. It is a cooperative relationship with banks in various countries in terms of business nature, not a competitive relationship with each other. The clearing network between different currencies led by IBM can easily obtain the support of various banks.
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3. Enlightenment to us
Stripe, IBM's partnership with Stellar led to mixed results. This is very worthy of reference for participants in the industry. Some of these implications are classical business strategies, others are specific to blockchain-based applications.
First of all, the superiority of technology does not directly guarantee the successful application. In terms of landing applications, the business model is more important than the technology itself. Stellar's partnership with Stripe and IBM illustrates this point.
