If cyber-security is an arms race, the good guys are losing, believes Mariano Belinky of Santander Bank; as quickly as cyber-security companies come up with a new defense, hackers seem to have figured out how to beat it.
“It’s a money pit,” Belinky, managing partner at Santander InnoVentures, Santander Group’s VC fund, told The Times of Israel on his recent visit to Tel Aviv, where he attended a financial technology event.
“Unfortunately you have no choice but to spend the money, because your system is only as strong as its weakest link. The best defense is to pile on technologies in the hope that you will discourage hackers from attacking you and instead incentivize them to attack someone else, because their defenses are easier to get through than yours.”
But long-term, that’s not a solution – neither for his bank nor for the financial industry itself. Israel, however, has the technology that could supply a sustainable solution – though not necessarily by means of the top cyber-security technology that the country has become known for.
“I see blockchain technology as a good candidate for future secure financial transaction technology,” said Belinky. “Israel is already a strong player in this area, and definitely has the talent to develop blockchain-based apps for banking.”
As head of start-up investments for Santander, Belinky would be more than happy to invest in promising blockchain technology firms. A bit late in discovering Israel, Santander, which is the biggest bank in Europe and South America, is now actively seeking investments in Israeli financial tech firms, as banks and financial firms like Citi, Visa, Mastercard, Barclays, and others are already doing.
“We’ve already invested in one company, called MyCheck, and we expect to do at least one or two investments a year,” said Belinky.
MyCheck, founded in Israel in 2011, is an app that allows users to pay bills at restaurants, bars, hotels, and other places of entertainment using their smartphones – a long-sought after financial technology goal, turning the smartphone into a kind of credit card. “There is a strong pool of talent in Israel, and the start-ups here know how to develop technology for foreign markets, so it makes a lot of sense for us to be here,” Belinky said.
The decentralized blockchain technology – the same tech that powers Bitcoin and other crypto-currencies – could revolutionize banking in many ways, including making home banking safer and more secure. “We have 100 million clients, most of them private individuals and small businesses, although about 10% of our clients are enterprise,” said Belinky.
Those consumer-oriented clients like the idea of a bricks-and-mortar branch they can visit, and a banker they can speak to in person.
“Of course running a branch is a lot more expensive that having the client download an app and do their banking that way, but you can’t just foist those changes on clients. You have to think about their needs, how you acquire them and how they grow with the bank.”
While older customers who are not quite at home in the digital age still prefer the old-fashioned ways of doing things, younger customers are looking for a digital experience – an app that will be easy to use, and will not put their money at risk.
That’s where blockchain technology comes in. Although Bitcoin has proven to be less secure than many believed, the failure of top Bitcoin players like Mt. Gox and others was mostly due to human-perpetrated fraud, not the failure of the blockchain. The blockchain system allows many different computers to enter transactions on an account and to verify them independently – in a manner that makes it very difficult for anyone to commit fraud, since all transaction records (deposits, withdrawals, credits, etc.) are dependent on confirmation from numerous sources.
The key to blockchain tech is cryptography, which secures the entry made onto an account from the different computers, said Belinky – and cryptography is an Israeli specialty. “With its talent pool, Israel can become the reference market for blockchain apps. No other place has the tech and people for this kind of work – you just don’t find this level of talent in Silicon Valley and other tech centers,” said Belinky.
One of those Israeli blockchain tech firms – GetGems – won the award for Most Visionary Social Media Solution at Citi’s Global Financial Technology Challenge, which took place in Jerusalem, London, Nairobi and Warsaw last May. GetGems, which bills itself as “the first messaging app that pays you,” allows users to send payments using crypto-currencies (including Bitcoin) via text messages, combining payments, social networking, and blockchain technology. According to the company, Citi is exploring a “commercial relationship” with GetGems, which “reaches beyond those currently banked to those without a bank account or debit card.”
GetGems is just one example of a growing blockchain business in Israel, but start-ups could be doing so much more, said Belinky.“All the talented cryptographers are going into cyber-security. The Israeli cyber-security industry is also very innovative, but it’s still an industry that at its essence is always going to be behind the eight ball – trying to stay one step ahead of hackers, who are going to catch up eventually. Blockchain apps could be a new paradigm, for banking and for Israeli financial technology. If 20 graduates of top IDF units like 8200 would work in blockchain instead of cyber, it would be of great benefit to everyone.”