Blockchain is by far the most impactful next big technology at this time, and it’s causing disruptive innovation in almost every vertical. But nowhere is the impact being felt with so much urgency than the banking industry. Every financial institution now realizes that they must get on the blockchain bandwagon, and they also know that doing so will make their current branch banking system redundant. So there are bound to be winners and losers as banks go through the inevitable branch transformation process over the next 3-5 years.
In this post, we’re going to highlight who stands to gain the most from blockchain banking, and who will have to adapt and change their business model, products and services.
Blockchain Banking Winners
1. Fintech and branch transformation providers
Banking institutions want to start offering blockchain banking, or it’s equivalent in terms of customized distributed ledger transactions. There’s a huge surge in demand for this implementation, and the fintech startups and branch transformation consulting firms that can do this now have more customers and work than they can handle.
The good news is that every bank and financial transaction provider in the world will be thinking about adopting blockchain technology, so these fintech startups are going to be very busy for years to come.
2. Cryptocurrency exchanges and trading platforms
Cryptocurrency trading has come to the institutional trading platforms, and it won’t be long before this infrastructure starts powering banking transactions. The most recent example is Coinbase’s Global Digital Asset Exchange (GDAX), one of the world’s largest and most trusted digital asset exchanges. Coinbase is a digital currency platform facilitating Bitcoin, Bitcoin Cash, Ethereum, and Litecoin transactions of over 13 million users.
They have now tied up with high-performance professional trading software provider Trading Technologies International, Inc. (TT). Their partnership brings professional cryptocurrency trading functionality and market access to the institutional trading world. It opens up spot trading and derivatives trading side by side for institutional traders on the TT platform.
TT also claims it is developing domain-specific technology for cryptocurrency trading and will be rolling out machine-learning tools for real-time trade surveillance. It is this kind of partnership that you’ll be seeing banks enter into very soon with the cryptocurrency exchanges and trading platforms.
3. Banking customers
Direct blockchain transactions are an undeniable win for banking customers, who will pay reduced or no transaction charges and will be able to make and receive payments in real-time, without any transfer delays. As explained in this post, Blockchain RTGS can reduce the bank’s operational costs on international payments by up to 33%. Distributed ledgers are also making it easier for customers to open new bank accounts instantly if their KYC documents are already there in blockchains.
4. Bank shareholders, management and leadership.
The key banking use case for blockchain and distributed ledgers is cost reduction. As mentioned above, blockchain banking will reduce operational costs for transactions. It will also reduce branch overheads by forcing digital transformation across your entire network. The net result, for shareholders, management and the top leadership, is an improved customer experience at lower costs.
Blockchain Banking losers
1. Kiosk manufacturers, distributors and integrators
Digital transformation and enabling customers to do online and mobile banking have virtually ensured that they come to the branch and/or go to an ATM only on rare occasions. This means all the physical banking infrastructure has to be restructured, including in-branch kiosks and ATMs. The biggest negative impact of this reduced need is going to hit the bank kiosk manufacturers, distributors and integrators.
2. Bank employees
Continuing the same line of thought, just in time banking through mobile and SMS ticket systems reduces the wait times for service at branches. Digital transformation has already reduced the number of customers coming to branches in-person, so the use of distributed ledgers simply eliminates the need for multiple payment counters and staff and a large bank branch. Downsizing is therefore an inevitable result of blockchain banking.
3. Financial sector regulators
Direct and unregulated financial transactions between senders and recipients is a nightmare for banking regulators. It’s also a security threat and needs to be debated before the public policy is decided that allows blockchain to be used for banking in a way that it can be tracked and monitored without requiring to be routed through banks and payment gateways.
4. Payment gateways and card companies
That brings us to the financial sector that will face the brunt of blockchain innovation – payment gateways and the card companies. Blockchain directly eliminates their entire business model. If you can imagine giant global corporations such as Mastercard and Visa being left stranded with no customers… After all, there are some things that money can’t buy. For everything else, there’s blockchain.