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Opinion

Energy market might beat banking onto blockchain

Banks are proving so slow to collaborate on blockchain protocols that could reduce costs in financial markets that it almost looks as if they wish to profit from persistent inefficiency.

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Moody’s analyzed in April the potential downside for investors in bank bonds if blockchain technology becomes widely adopted and reduces the cost and time taken up in executing cross-border banking transactions.

Colin Ellis, managing director in credit strategy, concedes: “Banks could benefit significantly from the development and implementation of blockchain technologies in terms of enhanced efficiency, cost savings and risk reduction.”

But he points out: “The adoption of these technologies will also limit processing fees, commissions and gains on foreign-exchange transactions, which will pressure revenue.”

Swiss banks would be most exposed to reductions in fees and commission, Moody’s suggests, with 50% of their revenue coming from that source.

Italian, Canadian and Israeli banks follow at around 35%. Other banking systems that process substantial cross-border transactions ­– including those in the UK and Belgium – might also suffer considerable disruption from the technology.

By contrast, banks in Asia-Pacific, as well as some smaller European periphery countries, are relatively less prone to relying on fees and commissions in generating total revenue.

It should perhaps come as no surprise, then, that at a Berenberg conference in April, the German bank’s own analyst Paul Marsch reported that the financial services industry has suddenly concluded that enterprise-grade blockchain is complex and difficult, and that timelines to live production will be longer than the hype first suggested.


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