As the sweep of history will certainly mark the year 2021 as a transition period for COVID-19, I would argue that many of the disruptions that the pandemic accelerated will have long-term implications for the financial services sector.

The revolutions in financial technology are fundamental and now at a tipping point. Consider the historical corollaries of several earlier innovations in history: the telegraph, the railroad, and the rise of the internet. In the early 18th century, it was widely known that electric currents could travel long distances over wires. But it was not until both the system (the Morse code) and the infrastructure were developed did it revolutionize communication (see John Steele Gordon, An Empire of Wealth [Harper Collins 2005], 154–57). When the tipping point was reached, widespread adoption and a multiplier impact resulted, affecting everything from shipping to the bond and stock markets in New York and London.

The development of the railroad experienced a similar revolution. In 1830, there were 23 miles of railroad tracks in the United States; by 1900, almost 200,000 miles of track had been laid. And when the communication revolution of the telegraph was deployed to advance the logistics of the railroad, from single-track to dual-track lines, the speed and efficiency of the railroad synergistically expanded the telegraph communications network (see John Steele Gordon, An Empire of Wealth [Harper Collins 2005], 157).

The revolutions in financial technology are fundamental and now at a tipping point.

The rise of the internet in the 1990s can be said to have followed a similar pattern of invention, technological advance, networking, and a tipping point of widespread adoption. The first suggestion that a network between individual computers could be established was floated by an MIT professor in 1962. Once the open architecture network concept was combined with Ethernet technology, heavy-duty routers, and the increased production and widespread adoption of PCs, internet 1.0 evolved from university conception to the internet 2.0 it is today, ubiquitously used and adopted worldwide.

These remarkable revolutions are being re-lived through blockchain technology. The parallels are unmistakable, and 2021 signaled, in my opinion, the tipping point in which widespread adoption and cultural confidence converged and paved the way for Web 3.0. In 2015, it is estimated that only 1 percent of Americans held or had owned digital currencies. By 2021, that percentage was 16 percent. According to crypto.com, currently the number of people globally holding digital currencies has doubled to about 220 million. In my estimation, the design of blockchain technology may be so disruptive as to allow new payment systems, completely outside the money transfer system, with safe and reliable, immediate and cheap frictionless payments.

Accompanying my first observation is my strongly held view that the regulatory machinery will begin to regulate blockchain technology. Once the regulatory state “blesses” a technological breakthrough, the technology becomes the standard by which widespread adoption and proliferation accelerates. Just as the federal regulation of the railroad industry did not slow down the proliferation and dominance of railroads, so too will federal regulators and Congress ultimately “bless” and begin to standardize blockchain technology.

Another observation for 2022 relates to social change. I believe that the tangible steps taken by Congress in 2021 to promote the interests of communities underserved by capital and financial innovation will not be a fleeting mission. The creation of the Emergency Capital Investment Program, for which EJF strongly advocated, reflects a breakthrough understanding that access to permanent capital, not deposits, has a multiplier impact on the communities and people that Minority Depository Institutions and Community Depository Financial Institutions serve. I believe this program will do what it was intended to do: decrease the level of inequality in my country one loan and one resulting job created at a time.

Finally, I believe that there has also been a breakthrough understanding among federal government officials that technology can also be part of the solution for communities underserved by access to capital. Banks and non-bank lenders alike are increasingly adopting technology that facilitates making loans to a broader group of people and many such tools decrease the friction costs associated with last-generation underwriting as well as physical branch-based lending. Although there are critics of such technology, EJF believes that the direction of travel is their continued adoption and regulatory acceptance as necessary for the financial services ecosystem.