Players in the finance industry have been eager to explore new technology platforms, such as bitcoin and blockchain, which can help streamline their processes. Platforms have a robust algorithm that performs the research for bitcoin traders and makes trading easy. Also, it has helped many beginners to get started with bitcoin trading. However, banks’ resistance is rooted not only in suspicion about the currency’s long-term viability but also in uncertainty concerning keeping customers loyal amidst an onslaught of digital competition that leverages alternative transaction technologies. If you are planning to trade Bitcoin, you may consider investing in a reputable trading platform like quantum ai app
Banks are also concerned that they will miss the inevitable shift to new payment technologies. In a survey conducted in September 2016 of nearly 300 international financial institutions (IFI) executives, only one-quarter said their banks would “lead the market” in providing innovative digital solutions within three years. Most respondents said their banks need the right technology or incentives to win or retain customers.
Blockchain technology is gaining traction, with growing financial institutions and rival tech firms embracing this nascent technology. Blockchain has been deemed capable of transforming banking infrastructure, operations, and value chain management systems because it can process transactions faster than traditional solutions.
Blockchain can streamline, enhance and speed up transactions between banks and their trading partners by reducing the time needed to reconcile accounts, handle payments and verify shipments. Many banks are testing distributed ledger technology to execute financial trades faster, smoother, and more efficiently. Let’s explore why banks are afraid of bitcoin and blockchain.
Why are banks afraid of bitcoin and blockchain?
- Banks fear Bitcoin and Blockchain will disrupt their business model
Banks fear that bitcoin and blockchain could disrupt their business model. The way these financial institutions have been doing business using legacy systems is the same way they “invented” the mortgage-backed securities market, which created the global financial crisis in 2008. To increase risk-adjusted returns and create more complex products, banks removed themselves from the loan origination process, increasing reliance on third-party lenders.
The third-party lenders were able to flourish by catering to borrowers who were risky but also offered higher-than-expected yields for a given risk profile. It allowed them to make large profits by accepting riskier loans and pushing the loans off on the banks. Banks are afraid that the same could happen with cryptocurrencies such as bitcoin or blockchain because they will be trying to deflect interest in competing technologies. In contrast, they try to figure out how to implement their blockchain-based offerings.
- Banks Fear Bitcoin, Blockchain & Digital Currency will erode Trust in Financial Institutions
Banks are afraid that bitcoin, blockchain, and digital currency could erode trust among consumers, which may ultimately cost them money. According to a recent report, one in three consumers believes digital currencies such as bitcoin will eventually replace traditional forms of money. Banks are afraid that if their customers start using cryptocurrencies instead of fiat currency, they will cut out the middleman and go directly to the source for their monetary transactions.
- Banks Fear Greater Competition
As mentioned above, banks have been operating under a business model that has not changed much over time – regardless of whether it was good or bad in its inception. This model has been subject to little progress as banks have focused on cost reduction and technology solutions, increasing efficiency and cutting down on customer support. Banks are afraid that more efficient competitors will come into the market and undercut their profits without them having to alter their current business model.
- Banks Fear Bitcoin is too volatile
Banks are afraid that bitcoin is too volatile since cryptocurrency has a high level of volatility that may affect customers’ willingness to use it as a payment method. Banks fear the volatility because it may harm their ability to operate and expand their customer base, thus losing revenue potential and retail customers.
They are afraid that customers will turn towards disruptive technologies such as cryptocurrencies for financial transactions if they do not trust banking institutions. As a result, customers in developed countries are more likely to purchase using a mobile device or the internet instead of a credit card or cash. It could harm their ability to manage risk properly, ultimately decreasing customers’ trust in the banking ecosystem. In addition, banks are afraid that they will lose revenue potential if customers trust them less.
Closure:
Banks are concerned about greater competition from alternative financial service providers if they keep their current business model. Banks are confident of becoming obsolete as new decentralized crypto-markets grow but rather becoming irrelevant in a changing world.
Banks will try to find ways to implement their blockchain-based offerings to remain competitive in the marketplace. It will require banks to make blockchain-based services more appealing to users and provide more streamlined services than their competitors.
Trust, transparency, and a system of checks and balances will all be necessary for the future of blockchain in banking. Customers should feel comfortable that their private information is secure, that fees are fair and reasonable, and that they have reasonable access to customer support when needed.