Ever since bitcoin was a dime a dozen back in 2009, the blockchain technology has been a threat to the retail banking industry. Bitcoin’s legal status is still questionable in most parts of the world today, while a few countries have explicitly legalized bitcoin trading, some governments have greatly restricted its use or even banned it in some parts of the world, e.g. Russia, mostly because the world’s favorite cryptocurrency is an eminent threat to Central Banks and the retail banking industry, so why are retail banks intimidated by the blockchain technology?
Bitcoin Transaction Fees Vs Retail Banks’ Wired Transfer Fees:
A wired transfer is a form of electronic money transfer from a bank account to another in any part of the world. The fees of wired transfers vary from bank to bank and country to country, so for simplification, we are going to use the USA as an example to illustrate the cost of wired transfers:
Federal Regulations govern domestic wired transfers nationwide. It costs around $25 to send a domestic wired transfer and $12 to receive one anywhere in the USA. For international wired transfers, it costs around $40 to send a wired transfer and $16 to receive one. Nevertheless, ACH transfers’ fees are much lower when included in various online banking packages. Let’s compare this to Bitcoin’s transactions’ fees;
In most cases, any amount of bitcoins can be transferred directly from one person to the other, anywhere on the globe, for less than 5 cents. The receiver of the funds can see it has been sent within seconds and gets confirmations within 20-30 minutes.
How Do Retail Banks Respond to Their Customers’ Needs?
KPMG published an interesting report last January that examined how the retail banking industry can be affected by cryptocurrencies and the blockchain technology in general. According to the report, banks are reluctant to respond to their clients’ needs as their legacy systems, data management protocols, increasing cost of regulatory control recipes and heightened emphasis on remediation hurdles banks’ response speed. When considering the fundamental services retail banks offer their clients – deposits, lending, saving and payments – most banks are too slow at delivering the service to the client which markedly affects their content. The report states:
“New challenger organisations, from banks to peer-to-peer lenders to PayPal and bitcoin are smaller, more agile and quicker to respond to changing trends.”
To sum up, the retail banking industry can simply totally vanish within the next 10 years or so, if bitcoin, and cryptocurrency in general, continue to gain acceptance by individuals and financial experts all over the world. Bitcoin represents not only a threat to retail banking, but also an innovation that can help banks today offer their clients a better service.
1- KPMG: The changing world of money, January 2015. https://www.kpmg.com/UK/en/IssuesAndInsights/ArticlesPublications/Documents/PDF/Market%20Sector/Financial%20Services/the-changing-world-of-money.pdf
2- Wikipedia: Wired Transfers. https://en.wikipedia.org/wiki/Wire_transfer
3- Notquant. Government Attempts to Regulate Bitcoin. https://notquant.com/government-attempts-to-regulate-bitcoin-government-will-fail/