Crypto News

Central Bank Digital Currency: Blockchain Could Turn Banking Upside Down

Banking is remarkably stuck in old ways. The model has changed little in decades. Banks fund themselves partially with deposits and then lend at higher interest rates, trying to collect transaction fees from areas like payments. However, as some central banks test their own digital currencies, key changes in the industry approach are changing.

Initially, sleepy banks allowed fintechs to steal large parts of banks’ payment chains. Core banking franchises could suffer the same fate if the banks don’t jump into new areas like distributed ledger technology, aka Blockchainadvance.

Despite all their bad press cryptocurrencies at least demonstrated the effectiveness of blockchain technologies to cheaply corral large amounts of data. The industrialization of banking services such as consumer finance, mortgages and savings is a logical next step. Banks must lead this process or risk further erosion of core activity revenues.

Up to two-thirds of European banks’ net interest income could be at stake, says Mediobanca’s Andrea Filtri. His conclusions follow an analysis of failure-prone standardized products at 12 of the largest banks by revenue. In order to adapt to the disruption, banks’ cost-income ratios would have to fall from around half today to under 30 percent.

Using blockchain to cut costs could help. Although the technology is attracting a lot of attention, there are few practical applications. One of them is Spunta, which connects Italian banks for account reconciliation. Applying his system to a hypothetical single blockchain for all standardized banking services cuts costs by a staggering 99 percent.

This is a simplified example. But the implications are clear. Should central banks adopt digital currencies, the use of blockchain could become widespread. Adapting to this disruptive technology will be profitable for the remaining banks. This potential for greater efficiency should be a temptation for banks everywhere.

Source: Crypto News Deutsch

Related Articles

Leave a Reply

Your email address will not be published. Required fields are marked *

Back to top button