The slow response of banks to the threats posed by Blockchain and Distributed Ledger Technology (DLT) leaves the industry exposed to a $150 billion revenue shortfall unless they can up their game, according to an analysis by Bain.
Compared with current payment systems, distributed ledgers offer distinct advantages that meet customer demands for a faster, cost effective and more reliable cross-border payment option. While the technology is still in its infancy, distributed ledgers offer the potential for profound improvements in the operation of the complex pipelines that make international payments possible. And, in the long-run, distributed ledgers may impact all forms of payments including domestic cards and automated clearing houses (bank-to-bank).
In interviews with more than 50 senior bankers, venture capitalists, technologists, international payment association executives and start-up CEOs, Bain & Company found most banks are not prepared to retain control of international payments – a battle for a market worth $150-200 billion today.
Bain’s research shows that in theory banks are well positioned to confront the changes triggered by the rise of distributed ledgers. In practice, however, the situation is more complicated. Regulatory and other hurdles may have forced most digital currency start-ups to partner with, rather than compete directly against, incumbent banks. Yet, most financial institutions remain in ‘experimentation mode,’ wary about the scalability of the technology, privacy issues associated with broadcasting commercially sensitive information about money flows, and the volatility and governance of non-fiat digital currencies. With such a large prize available, faster-moving, more committed banks stand to gain significant share.
“Change will not come easily for banks,” said Glen Williams, who leads Bain’s global payments sector and co-authored the report. “They recognize that distributed ledger technology has the potential to improve the speed, transparency and efficiency with which payments are made, but the current market structure gives them a powerful incentive to stay the course. About $300 trillion of transactions flow through these networks each year, creating significant revenues for banks. Further, network dynamics make it hard for alternatives to scale up: participants will not join a network until it has sufficient reach, but reach comes only from widespread participation.”
Banks’ initial responses to fast-moving developments in digital currency – appointing mid-level technology executives to industry consortia, participating in the conference circuit and running limited distributed ledger simulations – have left them flat-footed.
Lack of a clear path forward is particularly problematic for international payments and trade finance, where distributed ledgers have the greatest near-term potential for disruption.
By cutting the number of middlemen and enabling direct transactions between counterparties in international correspondent banking, distributed ledger solutions speed up transaction times. They also ensure that each participant has a complete view of its customer accounts and balances – the key building blocks of automated payment-tracking and notification tools. Finally, distributed ledgers may also significantly reduce costs, including the capital tied up in the correspondent banking network, and error rates.
Trade finance, although a smaller sector than international correspondent banking, exhibits many of the same characteristics. It generates roughly $23 billion of direct banking revenues worldwide, supports many broader transaction banking relationships and suffers from extensive friction points. For example, about 50 percent of banks’ costs for a letter of credit arises from manual document handling and checking, which creates delays, errors and expense. That opens the door to huge potential improvements from distributed ledgers, though commercial offerings capitalizing on that possibility are still in early stages.
“Despite hesitancy among many banks, we see evidence that companies are finding ways to overcome technical and adoption hurdles to avoid getting left behind,” said David Gunn, head of Bain’s payments team in Europe, the Middle East and Africa and the report’s co-author. “The wave of investment in digital currency start-ups clearly signals that payments channels are attracting a new degree of interest, and new competitors are changing customer expectations. Innovation is upon us, and doing nothing is not a viable option. Now is the time for banks to move from experimentation to action.”
In the longer term, as central banks gain comfort with the technologies, the impact zones will shift towards domestic payment systems – including cards and automated clearing houses (i.e. the ‘rails’ over which domestic banks exchange money today). This will impact all banks profoundly, not just those with significant cross-border business.
Banks’ initial responses to fast-moving developments in digital currency – appointing mid-level technology executives to industry consortia, participating in the conference circuit and running limited distributed ledger simulations – have left them flat-footed, claims the consultancy.
- A2B Direct to Launch a Blockchain Platform and Hold an ICO - June 24, 2017
- The ‘under the radar’ ICO, Populous. A platform tackling the Multi-Trillion Dollar international billings industry. - June 23, 2017
- Blockchain Startup TrueFlip Reinvents Business with 600 Year Long History of Fails - June 23, 2017
- EXMO exchange lists WAVES Blockchain Project - June 23, 2017
- Blockchain Startup DECENT Launch Date Announced - June 23, 2017
- Adex, A Decentralized Ad Network, Taps WINGS Platform For Community Engagement, Token Sale Value Discovery And Social Promotion - June 23, 2017
- Comcast’s Advanced Advertising Group And Participants Announce Blockchain-based Technology Platform - June 22, 2017
- Online Platform for Gamers to Release a Cryptocurrency for In-game Skins Trading; Launches an ICO - June 22, 2017
- Colu Launches Digital “Local Pound, East London” Currency to Empower Local Economies - June 21, 2017
- bitJob.io is Building a Student Employment Program on the Ethereum Blockchain – Launching ICO - June 21, 2017
- Blockchain Project Waves launches landmark USD gateway - June 21, 2017
- Status.im Raises $270m in Three Hours – Shattering Token Raise Record - June 21, 2017
- World’s First Mobile Data Exchange DENT Seeks to Disrupt Telco Market with Blockchain - June 20, 2017
- Financial Inclusion Company Everex Takes Home RemTECH Award For Ethereum Apps - June 18, 2017
- SONM Raises $42 Million in Token Raise - June 18, 2017
- WISeKey partners with the Blockchain Interface company RIDDLE&CODE to develop innovative solutions for securing IoT via Blockchain technology and crypto-hardware - June 17, 2017
- Bancor Announces $153 Million Raise, Largest Token Generation Event in History - June 17, 2017
- CORION Announces Final Coin Sale Details to Build its Revolutionary Platform & Stable-Rate Currency - June 17, 2017
- Enhancing the value of history with ZenDao – ICO announcement - June 16, 2017
- FunFair Announces Token Creation Event on June 22 for World’s Fastest Blockchain Casino Platform - June 15, 2017
- Blockchain Technology Venture Nimiq Announces Token Sale - June 14, 2017
- Outlier Ventures Makes Multi-Million Dollar Investment in Distributed IoT Marketplace ‘IOTA’ Through Major Token Purchase - June 14, 2017
- Bancor Token Allocation Event Smashes Record – Raises over $150 Million - June 13, 2017
- Consensys Introduces Omega One - June 12, 2017
- MetaX and DMA Join Forces to Launch adChain: a Blockchain Solution to Digital Advertising Fraud - June 12, 2017
- Aeternity Raises $24 million Over Phase Two of Token Sale - June 12, 2017
- HyperChain Capital announces Collaboration and Investment in CoinDash - June 12, 2017
- Community-Driven Cryptocurrency Credits Announces First Public Release - June 12, 2017
- Bancor Protocol Foundation Announces New Partners Before Upcoming Token Allocation Event - June 12, 2017
- Investors from Russia are launching a venture fund formed on blockchain - June 12, 2017
- Bancor Adds Heavyweight Advisory Team to their Foundation – Token Allocation Event Kicks off Today - June 12, 2017
- Bancor Protocol Foundation Adds Author and Euro Designer Bernard Lietaer as Chief Monetary Architect - June 10, 2017
- Russian Billionaire Announces Business Incubator on Waves Platform - June 9, 2017
- Bancor Launches Crowdfunding Valuation And Promotion Via Wings Dao On Ethereum - June 9, 2017
- Coinsilium invests in Indorse.io Decentralised Professional Network - June 8, 2017
- Cofound.it Breaks Pre-Sale Record, Selling Out With Priority Pass Before Public Token Sale - June 7, 2017
- Cofound.it Token Pre-Sale Reaches $5 Million Threshold Within Three Hours, Announces First Three Projects - June 5, 2017
- Blockchain Startup DECENT Testnet #2 Launched! - June 4, 2017
- Blockchain Challenge Dubai Announces Winners- Awarded $45,000 - June 4, 2017
- Waves Ceo Sasha Ivanov: Blockchain Will Lead To Rapid Progress Not Only In State Administration, But Also In Business - June 4, 2017
- Exscudo ICO Successfully Concluded – $5M Dollars Raised - June 1, 2017
- Aventus launches Ethereum-based Event Ticketing Solution - June 1, 2017
- Brave Token Sale Blasts Records With $35 Million in 30 Seconds - June 1, 2017
- Japanese Blockchain Startup releases VALU – Social Media Value That Can Be Traded - May 31, 2017
- MetaX and ConsenSys Announce adToken Sale June 26, 2017 - May 31, 2017
- Blockchain Indy Production Start Up to make a TV Series about the Bitcoin Revolution. Fans invest to help tell the story! - May 31, 2017
- Chat Platform Kik to Integrate Kin Token as First Mainstream Adoption of Cryptocurrency - May 31, 2017
- VPN Blockchain Startup Mysterium Network Raises 68,629 ETH ($14,358,975 USD) in under 45 minutes - May 30, 2017
- XinFin Introduces Blockchain-based Institutional Financing Marketplace Alongside Pre-ICO Token Sale - May 30, 2017
- European Energy Companies to Test Peer-to-Peer Trading Over The Blockchain - May 30, 2017