Banks are not moving fast enough to protect themselves against blockchain disruption, which could result in a loss of up to $150 billion in revenue, according global management consultants Bain & Company.
Bain: Banks ‘Flat-footed’ in Face of Blockchain Disruption
The firm, which filed a report on banks’ responses to blockchain last week, said that while banks face “hard choices,” adopting a “wait and see” approach leaves institutions “flat-footed.”
“The innovation genie has popped out of the bottle and doing nothing no longer is a viable option,” the report says.
Bain (Bain.com) points to Santander’s collaboration with Ripple as an example of progress beyond the current trends in traditional finance, which could prove to be a real advantage in the future. Ripple recently partnered with Canadian bank ATB Financial as well, sending the world’s first international, interbank blockchain payment to Germany.
The report, however, criticizes the response of the majority of institutions — “appointing mid-level technology executives to industry consortia, participating in the conference circuit and running limited distributed ledger simulations” — as not representing enough engagement.
Bain & Company recommended three areas banks should focus on to prepare for the seemingly inevitable onslaught of Blockchain-based innovatory finance:
“Accelerate investment in digital wallets and payment apps… Reframe regulatory compliance as a crucial source of competitive advantage [and] …Reframe regulatory compliance as a crucial source of competitive advantage,” Bain says.
Banks’ Scaling Paradox
Researchers specifically highlight the unwieldiness of the current international payment setup as a key area, which is due for a shake-up. The accompanying diagrams show today’s interbank settlement system at a glance to be both inefficient and needless complex.
However, worries about scaling of any disruptive alternative is given consideration as a legitimate issue requiring attention. Bain notes:
Network dynamics make alternative [international correspondent banking] systems hard to scale up. Participants will not join a network until it has sufficient reach, but reach comes only from widespread participation.
Nonetheless, the overriding message of a threat to banking revenue echoes statements even from the banking sector itself. Bitcoin.com previously reported on South Africa’s Rand Merchant Bank identifying up to 40 percent of banking revenue that could be lost through inefficient responses to blockchain advances.
The bank’s Blockchain arm chief, Farzam Ehsani, stated that the technology “calls institutions to a new paradigm.”
Ripple, meanwhile, has come under increasing criticism from the blockchain ecosystem itself, its partnering with the banking sector having led to increased centralization and data collection. The phenomenon has been repeated elsewhere, however, with institutions such as Coinbase also having to balance legislative difficulties with the political ethos of Bitcoin’s underlying technology.
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