In its annual report to the SEC, Bank of America (BofA) admitted they consider cryptocurrencies a major competitive challenge. Cointelegraph quotes the report, in which BofA states: “Our inability to adapt our products and services to evolving industry standards and consumer preferences could harm our business.” As businesses and individuals adopt cryptocurrencies, they also adopt the financial services made possible by these digital currencies. Until recently, banks were among the only providers of such services, and the advent of new competition poses a threat to their dominance in the industry.
Cryptocurrencies have sweeping applications to FinTech. They can facilitate cross-border transactions, secure assets, ensure anonymity, and offer a variety of other functions that are essential to modern finance—they even have their own tokens that themselves have market value. Not only do these decentralized services draw users away from banks, but because most cryptocurrencies increase in value the more they are used, they also provide a financial incentive to do so. This means that BofA is collecting less revenue from fee-based services like international wire transfers and ATM usage fees, which raises the cost of doing business considerably.
Doctor Bitcoin, a friend of the cryptocurrency company Ripple (XRP), explains how wire transfers—with their complicated webs of intermediaries—can be improved: “These are all electronic processes, sure, but they’re manually operated and manually verified. As a result it’s very expensive even for local bank branches to operate wire transfers.” Ripple streamlines this process, he says, by managing it with its own settlement solution software called xCurrent. In this way, cryptocurrency companies like Ripple are challenging the industry status quo. According to BofA, “…The competitive landscape may be impacted by the growth of non-depository institutions that offer products that were traditionally banking products as well as new innovative products.”
Some banks—HSBC, Deutsche Bank, Santander—have taken an interest in cryptocurrencies. But the industry at large is still hesitant to go all-in, seemingly unsure of whether to ignore them, beat them, or join them. While BofA recently filed a cryptocurrency patent, it also disallowed credit card purchases of cryptocurrency. Banks stand to gain from blockchain adoption, but risk losing revenue in some areas to do so.
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