At the end of March the Estonian company Polybius Foundation announced that it is launching the world’s first digital bank, which will work using blockchain. To find out more about this bank and why it’s needed, we’ve interviewed Edgar Bers, Foundation Official Representative.
How did the idea of a bank like Polybius come up in the first place?
I live in Estonia. It’s well-known that Estonia is now one of the most completely digitized countries in the world: we even have such a thing as electronic residency. And here, we’re already used to the idea that all our services and resources should be accessible online. In Estonia everything is digital. In theory, opening a bank account shouldn’t be any harder than registering for an email address: you fill out an online form, you pass online authentication — and you’re sorted. In real life, the picture as in the past is not quite so rosy. Banks look like fossils from the analog age, as they always have: huge committees, fixed working hours, weekend closures, huge amounts of work done by hand and so on. With this situation in mind, any tech-savvy person couldn’t help but start thinking about how it could be changed. And so it was really just a question of time before a modern digital bank appeared — broadly speaking, as soon as people with experience, knowledge and the desire to make modern digital products got together with those who have financial expertise, banking experience and an understanding of what can and what can’t be improved within the conditions of existing regulations.
How can banks’ efficiency be improved?
As usual, the principal factor is the human factor. In modern banks there are far too many people who are really surplus to requirements. The people who deal with verification and transactions. Managers and clerks who work in offices, helping clients with operations that could be done online. Analysts who manage clients’ assets, studying the market and doing the trading. Even the cleaners who have to tidy up a huge area in these offices and bank departments every day — all this makes up a heavy load of expenditure which can and should be avoided.
Even skilled work can now be done by robots instead: for example, one recently-developed gadget at JP Morgan can analyse financial documents in seconds, which would previously have required 360,000 hours of work per year from lawyers and Loan Managers — equivalent to full capacity work from 200 employees, who would receive fairly sizeable salaries, and these costs would then be transferred to the cost of the bank’s actual services.
It’s another matter to actually do all this, and it’s not straightforward. In essence, you could say, we need to reinvent the bank from scratch — and we know for sure that it’s simpler and cheaper to do this from nothing than try to change a huge structure that’s been formed over decades. And so the idea of Polybius was born: a digital bank, created from the very first with the use of all the technologies available in 2017.
So everything’s going to be digital at Polybius?
Everything that can be digitized, will be digitized. We’re really aiming to digitize even what seems impossible to digitize. Bank payments are hardly rocket science; they’re just an exchange of data. Each transaction requires the creation, transfer and storage of electronic messages. The skeleton of a bank, the idea at its heart, is the transfer or creation (in the case of credit) of relative value and the storage of this information. The first banks didn’t need anything to function except a table and account books (the Italian word banco means the bench, counter or table on which money-changers spread out their coins). You don’t need many personnel for that.
It goes without saying that banks also have their own assets, private clients, and various other concerns besides payments. But there’s a lot of room for improvement here too with the use of modern technologies. Human involvement is, as always, necessary, but in far lesser quantity: only to control the robots’ work, and make the kind of critically important decisions which we’re not yet willing to entrust to even the smartest AI.
All the documentation in Polybius will be digital. We’re going to use blockchain for that: the technology itself will guarantee 100% that a concrete piece of information was entered at a specific moment of time, and will stay there without any chance of being deleted or changed.
Will this be accepted as proof, legally, by the relevant courts in the EU and in other countries?
Yes, as soon as we’ve passed the appropriate audit. When we conduct the ICO, we’ll launch a banking platform which will include data storage in blockchain; we’ll submit our Articles of Association and other important legal documents, and we will need confirmation that all this complies with European laws. To get this, we’re applying to the central bank of a European Union country for an audit. Most likely, it’ll be either the Finnish or Lithuanian central bank. The state banks in these two countries are positioning themselves to be oriented as much as possible towards introducing and adapting modern technologies. In particular, Lithuania has made an open statement of intent as a country — to become a leader in the financial technologies sector in the global division of labour, so both central banks are fully committed to new technologies, including blockchain.
Regardless of the country we choose, the central bank will conduct a thorough and scrupulous audit of our bank: from the front-end to the back-end — both from a digital and from a legal perspective. Needless to say, this includes assessing the blockchain’s security as an information repository. Basically, the regulator will be poking around with a flashlight in the very darkest corners, in order to thoroughly scrutinize Polybius Bank’s compliance with European standards of regulation.
Are you sure that they won’t be worried about the use of blockchain in this bank?
The regulator has no particular preference as to where and how we store our data: be it on a napkin, be it in blockchain, as long as the process of data entry, encryption and storage complies with accepted legislative standards. And once the audit is complete, regardless of which country’s central bank conducts it, our software will automatically be licensed for banking throughout the EU.
Our entire business, starting with the ICO and including the launch of the bank itself and its running, will be regulated by the laws of the European Union.
The project is being run by a team of people with great expertise both in the technological and financial sectors. You can have a look at all our staff on the Polybius site: https://polybius.io/#team
How long will the audit take?
At least two months. While the audit is being carried out, we’ll be working indirectly on setting up the bank: hiring staff, establishing relationships with partners and resolving a multitude of other corporate questions.
How much will setting up the bank cost?
The cost of setting up a financial institution depends on which type you choose. There are three options:
— The first type is an authorized payment institution. In essence, this is a straightforward payment system. Its creation, including all stages of development, costs about $1.5 million.
— The second type is an electronic money institution. Setting up “your own personal Paypal” costs $3 million.
— The third type is a commercial bank. The cost of opening a bank comes to $6 million, including operational expenses for the first year, before the bank achieves financial self-sufficiency.
Accordingly, the budget for launching Polybius will be $6 million. In order to raise this sum, we are launching an ICO — the digital equivalent of an IPO, only instead of shares we are putting Smart Contracts up for sale, guaranteeing our investors a share in the bank’s profits.
Mr. Edgar Bers, Blockchain & Bitcoin Conference Tallinn
The audit will begin once the ICO has concluded, when we will have a proper idea of the sum at our disposal for the Polybius launch, and we’ll know what type of audit we need given the choice of bank. Within a year the bank should at least be able to cover its operational expenses out of its income, and will then begin to generate returns for the investors who bought tokens.
What is an ICO?
An ICO is a modern method of financing digital projects and technological solutions. It’s a form of crowdfunding based on cryptocurrencies. Rather than buying shares in the bank, investors will get digital tokens in the form of a Smart Contract, where the necessary obligations will be outlined. The ICO will allow us to get a license, pass the audit, hire our staff, develop or buy the necessary technologies, build an advertising campaign and work through the first year or year and a half, until we start to break even.
Why did you choose an ICO? Why didn’t you go for traditional crowdfunding?
We are a digital bank and we’re focused on digital solutions. In comparison to traditional crowdfunding, which includes a commission for the platform, an ICO is cheaper — which means more resources will remain for the developers.
But the main thing is that we’ll have Smart Contracts. With normal crowdfunding the interaction between the backer and the company which receives money is a one-off: you put in the money and receive your goods, your product. Our Smart Contract sets up a permanent relationship: tokens purchased from Polybius form a digital commitment, in the shape of a Smart Contract, that dividends will be paid to the tokens’ owners.
So the token itself has intrinsic value. To give a rough example, if you go on Kickstarter and finance a new type of pencil, and buy these pencils for a dollar apiece, in a year’s time you’d probably struggle to sell them on for that same price. And you definitely wouldn’t be able to sell them for double. But with the tokens you will be able to resell. Their price may well increase. They have value in the sense of a written commitment to be paid a share of the bank’s profits — dividends. And they’re easier to manage. Everyone probably has a written contract from their bank at home, which in practice you never use and probably haven’t even read. But Polybius tokens will be kept in Ethereum blockchain. Nobody will be able to forge one or destroy them. Managing your tokens remotely will be completely possible.
How can investors make a profit from this? How much money do I need in order to earn from this opportunity?
We are building a bank for people, and so the minimum cost to join will be only $10, the price of one token. People sometimes spend more than that in one month for some digital subscriptions. A couple of paid services a month, and you can kiss your ten bucks goodbye. Even if you just go for a beer in Tallinn after work in the evening, you won’t get away with spending less than that. So the price of a token isn’t that high: it won’t expire in a year, and it will keep its value as long as Polybius Bank Project is in existence and functioning. And in proportion to the bank’s growth, the token’s profitability will grow, as well as the price that it could be resold for. Seen in this light, this is an investment in the purest sense of the word: you pay in once, and from then on it works for you. We will set aside for dividends on the tokens 20% of the bank’s profits, which will be distributed depending on the investment between all the investors who took part in the ICO.
— For all the investors who put in more than $10,000 at the beginning of the ICO, there will be a bonus of 25% more tokens. Any inquiries about this can be sent to info@polybius.io.
— During the first week of the ICO there will be bonuses on offer for all investors: 20% more tokens for the same price (i.e. 1.2 tokens for $10, instead of only one); in the second week 15% more; in the third, 10%; in the fourth, 5%; and from the fifth week onwards $10 will get you one token.
All our investors are welcome to set up their own bank account and get their own digital ID.
We are planning to start the ICO not later than in the end of spring. So you don’t miss out on this event, and so you manage to get tokens in the first weeks while there are still bonuses, sign up to the mailing list on our site: https://polybius.io/.