Blockchains are being touted as a disruptive technology that will cut costs by reducing transaction processing times from days to minutes and eliminating large chunks of manual back-office processes. Banks need to adopt blockchain, say advocates, or risk becoming the Blockbuster stores of the financial industry.
Maybe. And maybe cost savings and processing efficiencies are the most attractive features for banks. But what if blockchain can generate revenue for banks through new products and services? That’s worth some serious consideration.
What blockchains do is enable a quantum leap forward in making and verifying transactions. They enable all parties in any transaction to access one single source for specific data exchange without having to go through intermediaries or manually verify or handle the transactions. For example, in a blockchain world, a patient could go to a hospital for treatment and simply provide their insurance card. There would be no need to fill out any forms about their medical history and insurance. Doctors and staff would have immediate access to all the information they need. In addition, the patient would avoid the hassle of submitting a claim and waiting weeks for a decision from their insurance provider. All of this is taken care of quickly through one system.
Discussing blockchains as a bank revenue generator may seem a bit premature, like designing an Amazon-type website while the Internet was still being built. But considering the investment of resources that some banks are putting into blockchain technology, they need to be looking at all potential sources of value. As the saying goes, you can’t save your way to prosperity.
Fintech investments have grown exponentially from $1.8 billion in 2010 to over $19 billion by 2015. Moreover, 70% of this investment was in payments and other small and personal banking segments. This means that banks are facing tough competition from tech powerhouses like Paypal, Google Wallet, Apple Pay) while banks’ own tech investments are in process efficiencies. That’s called playing defense when it’s time to play offense.
So where might banks find revenue via blockchain? In time, banks will be able to use their blockchain systems to offer new products and services. Those same services might well appeal to younger consumers that banks have typically been unable to attract, those who are accustomed to instantaneous approvals and gratification. Payments are a rich prospect for banks’ blockchain offerings. They might offer digital currency exchanges like Bitcoin, Ripple, Ethereum, or micropayment systems.
What about credit scores? Knowing customers’ credit history and spending patterns could aid in reducing fraud as well as anti-money laundering (AML) and KYC compliance costs. More importantly, at a time when Equifax just experienced one of the largest breaches of consumer data due to hacking, blockchains may offer the security and potential to do away with the need for credit scores, or credit agencies for that matter.
In partnership with their commercial customers, banks might employ blockchain to digitize assets and processes. For example, blockchains could power the processes that help commercial customers manage their supply chains, execute smart contracts, and even pay their suppliers all in real time.
And what about banks disintermediating other industries for a change? Imagine, for example, being able to offer your mortgage customers the entire line of related services, soup to nuts, capturing all those fees that are currently paid to title companies for title transfers, insurance, and escrow payment settlement. For that matter, the bank could also become the real estate agent, the homeowners’ insurance provider, and the tax collector. How’s that for real value?
What bank revenue opportunities do you foretell for blockchain? I’d like to hear from you.
