Can Banking use Bitcoin to Reclaim its Authority?

Is the current retail banking system broken? Many would say yes. Can it be fixed? Probably and here are some reasons why Bitcoin and blockchain may offer a lifeline to the banking identity crisis.

With recent support for Bitcoin coming from the major digital banks like Revolut and German bank N26, it is time for the banking sector to recognize the fast paced change happening under its nose. Gone are the days when banks can consist of boards of white haired men making top down decisions that impact the wider economy. The digital age requires banks to be transparent, trustworthy, vibrant, flexible and secure.

Banks today must provide the same level of reassurance as they have done historically but also leverage technological trends that encourage loyalty from customers. Using bitcoin to rediscover the value of a bank as more crypto holders look to store, manage, maintain and safeguard their digital assets.

What is the role of a bank?

A financial institution that is licensed to accept deposits and make loans but really what is a bank to the general public? A safe place to store your most valuable assets at every stage of life’s journey: wages, savings, mortgage, kids education and pension.

It is a trusted building that will guarantee my earnings are secure. It is a place to go to when I need financial advice. It protects my assets in ways that others can’t. It helps me to secure loans for my business. It shows others how reliable I am so that they can give me a mortgage.

Banks continue to maintain a position of authority

Dismissing the banking system as old, defunct or inoperable maybe tempting as a technologies working on the cutting edge of the fintech environment. However, the value of banks to individual neighborhoods, societies and countries is not to be underestimate.

To put some context around this, in a study of the top 10 large banks in 92 countries it was found that government ownership of banks is pervasive and “The world average share of banking assets controlled by the government is 48%.” More recently, the International Monetary Fund reported that state-owned banks hold 21% of the assets of the banking system worldwide.

What is clear from all studies is that governments are still key players in the stability of the financial services industry. The ownership structures of these banks may effect operations, causing delays to the implementation and management of innovative technologies. However, there is increasing pressure on the banking system to maintain their leading role in the management of society’s financial requirements.

New banking customers unsatisfied

Banks domestic sovereign debt exposure is at a 15-year high according to the IMF. If the interdependence between banks and governments focused curtailed lending to banking customers it has negative effect on the wider economy. This is already happening across the globe. With this knowledge, banks must look for alternative ways to demonstrate their leadership role in society.

In addition, customers expect hyper personalisation, real-time banking data and a clear understanding of their future banking needs, including their relationship with Bitcoin.

If blockchain technology can help to better track, analyze and use real-time transaction data to better understand customer behavior. Bitcoin can provide a way for banks to demonstrate a wholesome approach to safely securing all financial assets while also delivering new services for today’s consumer.

Restoring trust in the eyes of the holder

For banks to maintain their position of authority in society it is critical that they offer reassurance to all of their customers. Whether the industry is ready or not, the financial world is changing and many newer entrants are searching for a safe house for all of their assets, including cash, gold, deeds, wills, Bitcoin and digital assets.

A report by Deloitte on the future banking revenue models points to the damaging effect to banks by not harnessing the building blocks of hyper personalisation. It suggests that banks could reduce costs with the introduction of technology and apply more intuitive user experiences to simplify the current products. It also states that the banks are not trusted. However, neither is crypto for a large portion of the public. Both have a negative perception of putting profits before ethics. By adopting a more wholesome approach, inclusive and transparent, banks can restore integrity to the wider view of financial services.

At the Bank of Tomorrow Summit last week comments from Charu Sethi, CMO of Unique Network stood out with regards to the opportunities for banks to transform,

“Digital assets are driving the competition for banks from multiple directions. One is the crypto native firms, another is the speed of transactions across decentralized platforms and the third is banks creating their own digital currencies. “Gaps and inefficiencies also have opportunities for new digital products using digital assets. New technology enabling broader use cases. “Banks need to have a vision that will steer them in what they want to do. Allowing them to harness the community for collaborative growth,” continues Sethi.

Bitcoin and blockchain technology is the trusted elephant in the room that can be harnessed to develop a more thoughtful approach to the collection of data.

Banking Data as a potential goldmine

According to the World Retail Banking Report by Capgemini Research, over 80% of banks face a data reliability challenges, 73% cannot generate insights and 70% lack the resources needed to process and analyze data. Following this data route, the same report also pinpoints that 68% of banks worldwide have inadequate data management tools. From the above data alone it is clear that banks have untapped data and in order to drive growth these areas need significant support.

Many banks are transforming their business models to keep up with the age of digitalisation. However, the fast pace of this change has been difficult for the banking sector to keep up with. Furthermore, the technology used within the banking system has been slower than that of digital challengers. Fintech giants like Revolut and N26 offer easy transactions at speed.

Although this is an improved experience for the end user, these online brands have failed to outperform any of the mainstay larger banks that continue to play a vital role as a pillar in societies across the globe.

As digital banking is likely to co-exist alongside the traditional banks for the foreseeable future how can we facilitate banks to effectively offer safe environments for Bitcoin storage? Banking on Bitcoin and providing personalized services based on transparent data may be two strategic moves for Trad-fi banks planning for the future.