Retail Banking

Retail Banking

Opinions expressed on this blog reflect the writer’s views and not the position of the Capgemini Group

Bitcoin, blockchain and the future of banking: have banks had their Kodak moment?

In 50 years names like HSBC, Morgan Stanley, and Goldman Sachs could quite possibly be confined to history books. Kodak used to sell 90% of the camera film in the world and had almost had 200,000 employees.

Now you would struggle to find a Kodak camera anywhere, why is it impossible to envisage a bank heading in exactly the same way? Destroyed by a technology they saw coming.\Users\mmasango\Downloads\vintage-820336_1280.jpg

In 2008 Satoshi Nakamoto invented what many thought would revolutionise modern banking: the Bitcoin. And it still just might.

However, it is the distributed ledger technology behind it, known as the ‘blockchain’ - rather than the Bitcoin - itself which could be about to change the world of banking.

Bitcoin has gone through the common stages of a crypto-currency*: massive hype and speculation followed by intense devaluation and a poor reputation as the currency of choice of the online black market. Perplexing it seems then that reputable financial organisations, such as NASDAQ, UBS, and Goldman Sachs, are considering the adoption of its underlying technology in their day-to-day banking operations.

Faster and more secure banking

Blockchain is effectively a decentralised account book whose technology lets Bitcoin users buy and sell without revealing their identities or needing to go through government agencies. The encryption makes the process significantly faster than traditional banking and removes the need for a retail bank to act as a guarantor.

Imagine information relating to previous owners of a £20 note such as how and when it was transferred, written directly on the £20 note itself rather than being kept on a bank system.
 Since the ownership history is held publicly and widely distributed, it is incredibly hard to be exploited by a single rogue hacker or cyber criminal.

Blockchain has the potential to erode the value of expensive banking infrastructure and allow payment speed and security to be provided without the need for banking IT systems. Proponents of Blockchain tech such as Chris Larsen, the founder and CEO of Ripple Labs, envisage value being transferred with the same ease that data is pinged around global networks!

Banks going the same way as Blockbuster?

The home entertainment industry has moved from VHS players, to DVD, Blu-Ray, and now Netflix. Banking has moved from cash, cheques, transfers, mobile payments and will eventually migrate entirely to Blockchain. Why not expect your local bank branch to become as relevant as your local ‘Blockbuster’ as people realise they can circumvent traditional payment methods and bank completely independently

The prospect of being circumvented has meant that banks have started to develop their own blockchain technology but intended deployment remains unclear. UBS are the first global bank to create a blockchain innovation lab at Canary Wharf’s Level39 accelerator facility which is a clear statement of commercial intent in the technology.

Oliver Bussman, CIO at UBS, believes that “blockchain technology will not only change the way we do payments but it will change the whole trading and settlement topic.” Goldman Sachs has also lent their considerable weight to the technology by spearheading a $50m investment partnership in the technology.

Pre-empting the threat of new technologies

Banks are now viewing alternative currencies and technology as an opportunity to be integrated into their operating model as opposed to an external threat. It seems logical that financial institutions would take this stance since so much of the industry is focussed on guaranteeing or tracking transactions.

Fast forward to 2050. Has the initial investment by some of the world’s biggest banks secured their future or are they a defunct institution in the same league as Blackberry, Kodak, and Blockbuster? Arrogance and ignorance in the face of digitalisation has beleaguered once incumbents who are now languishing in the corporate graveyard. If the investment is a statement of intent from major financial institutions then maybe they haven’t had their final Kodak moment.

*a crypto-currency is a digital currency which uses cryptography to secure the transactions and control the creation of new units and often feature decentralised control.

Banking Innovation

The sponsor for Banking Innovation at Capgemini Consulting UK is Anuj Kumar, Head of Risk and Regulatory Compliance ConsultingConnect with Anuj via his LinkedIn profile here.


About the author

Conor Waldock
Conor Waldock
Conor is a Consultant at Capgemini having started at the company as a graduate. He is in the Performance Improvement team and has experience across a variety of different industries but has a particular focus in delivering improvement programmes within retail operations.

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