Blockchain and Cryptocurrency Invade the Banking Landscape

Just this March 2019, members of the Basel Committee on Banking Supervision (BCBS) gave a warning statement on the potential risks banks face regarding the steady global growth of the cryptocurrency industry.

The BCBS is an international organization that aims to develop regulation and supervision of banking standards worldwide. The group is made up of banking regulatory authorities and Central Banks from 45 member countries.

Since the crypto industry isn’t managed by any government or public authority, it remains unsafe and unreliable as a long-term medium of exchange. Acts of money laundering, hacking, fraud, and terrorist financing have been observed countless times and continue to remain as issues to be resolved within the crypto community.

Despite the growing concern on the crypto industry’s instability, lack of security, and unaccountability, large financial institutions are looking at the bright side of the technology. Adoption has been slow, but key industry players are starting to act on fitting the blockchain technology into their future strategies.

Last February 2019, J.P. Morgan announced the release of its digital currency called JPM Coin. Unlike Bitcoin which is considered an asset that people can invest in, the JPM Coin is used more as a tool for immediately processing transactions between financial institutions located in different countries – a function more like what Ripple provides.

The JPM Coin is currently limited to business-to-business transactions only which involve the large movement of money. The company plans to release the technology to the public after it’s done with the testing phase.

Banco Santander, one of the largest banking institutions in Europe, recently announced its agreement with IBM to enhance the bank’s services using emerging technologies, including blockchain, big data, and artificial intelligence. The $700-million deal aims to reduce annual IT spend and significantly improve the institution’s flexibility in accommodating modern IT requirements.

In the Asia-Pacific region, the banking behemoth HSBC is leading the pack after completing its first letter of credit transaction using blockchain technology. The cross-border transaction happened between two offices of MTC Electronics in Hong Kong and Shenzhen.

With traditional methods, the transaction would have taken 10 days to process. But by exchanging documents through R3’s Voltron platform, the deal was processed in just 24 hours.

Banks interested in integrating the blockchain technology and introducing crypto-related assets must first possess the technical expertise to sufficiently assess the risks involved in associating themselves with the crypto market. These capabilities, though, are often seen not in established financial institutions but in emerging challenger banks.

Challenger banks are defined as small, modern, retail banks with a more customer-centric approach in providing financial services. They have better flexibility in absorbing technological advancements, including blockchain and cryptocurrency. Atom, Starling, and Monzo are examples of mobile-only, challenger banks who have developed their own disruptive technologies to tackle the everyday banking needs of customers which traditional institutions fail to provide.

Cryptocurrencies and blockchain technology continue to change the financial landscape in ways that may not be as widespread and obvious as people expect them to be. Still, it’s satisfying to know that both traditional and challenger banks are working toward integrating these technologies. Their actions confirm that the financial sector seriously considers the advantages of blockchain technology and digital currency in improving existing processes and services.

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