Two Ways in Which Blockchain Could Disrupt the Current Banking System
A recent Moody’s report has studied the impact of blockchain technology on banks. The report highlights a credit positive and a credit negative effect that the adoption of blockchain technology could have on the banking system, globally. Accordingly, the two key ways in which the technology is expected to disrupt the current banking system are:
- It could reduce cross-border payment processing time from days to seconds – a credit positive for banks as they would be able to handle larger cross-border transaction volumes on any given day.
- It has the potential to reduce the costs (commission, fees, and expenses) involved in cross-border payments processing – a credit negative for banks with the largest shares of their revenues composed of fee and commission income.
Here’s Where Asian Banks Have an Edge
Now, economies with the smallest share of their revenues in fee and commission income are the ones that should benefit in both ways. So, Asian banks, which have the smallest share of their revenue in fee and commission income, are the ones with the edge. Banks in Asian economies such as Sri Lanka, Philippines, Indonesia, Korea and Vietnam rank among those with the lowest fees and commission representations in total revenue (chart above).
While western nations such as the UK, Belgium, and Switzerland, with banks that handle the most cross-border transactions relative to GDP, do stand to benefit from the reduction in processing time for cross-border transactions by the implementation of blockchain technology; it would also negatively impact the relatively higher share of fees and commission in total revenue at these banks. So, a part of the credit positive achieved on account of higher transaction volumes would be negated by the reduction in the top line with regards to fees and commission income.
Banks in some of the larger European and Latin American economies do sport the largest shares of fee and commission income in revenues (chart above).
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