Blockchain’s Unassuming Threat To Banks

FinTech innovation is often seen as a threat to the traditional banking status quo – at least, that is, until traditional FIs begin acquiring, partnering with or developing their own FinTech solutions. Take alternative finance, for instance: While alternative lenders initially emerged in an effort to fill financing gaps left by traditional banks, today these players often work with their one-time competitors, no longer able to ignore the demand for enhanced services.

Blockchain has taken a bit of a different path to disruption, with large, traditional lenders quickly deploying collaborative initiatives or their own internal experiment programs to explore distributed ledger technologies.

This embrace of blockchain is due, in part, to the potential for the technology to proliferate within the banking system, not necessarily bypass it – though it remains unclear which path the technology will take.

This week’s Blockchain Tracker explores blockchain’s position as both an opportunity and a threat to traditional banks.


The biggest blockchain story of the week may be Banco Santander’s launch of a cross-border payments solution based on Ripple technology. Retail customers of the Spanish bank in Spain, the U.K., Brazil and Poland can now use the solution, Santander One Pay FX, with Santander planning an expansion of the rollout into new markets later this year.

Further, the FI said it intends to integrate additional features into the service, including real-time global payments (the service currently supports same- and next-day settlement).

“Blockchain technology offers tremendous opportunities to improve the services we offer our customers, and the launch of Santander One Pay FX is the first of many potential applications,” said Ana Botin, Banco Santander executive chairman, in a statement.

Santander was an early believer in blockchain, providing $4 million into Ripple’s Series A funding round in 2015 via its venture capital arm, SAN InnoVentures.

In India, ICICI Bank announced this week that more than 250 corporate customers have been on-boarded to its blockchain platform, which was designed to facilitate domestic and international trade finance.

“I envision that the emerging technology of blockchain holds an immense potential to simplify the document-intensive trade transactions by bringing all stakeholders on a single platform,” said ICICI Bank managing director and CEO Chanda Kochhar in a statement.

Another major financial service provider, Mastercard, also made headlines this week when reports surfaced that it is exploring the use of blockchain technology to protect identity data.

Reports this week said Mastercard filed a patent application with the U.S. Patent and Trademark Office last September, revealing the company’s consideration of blockchain to store personal data, including “name, a street address, tax identification number” and more.

“The use of a blockchain for the storage of identity and credential data may provide for an immutable storage of such data that can provide an accurate verification thereof and also prevent the fabrication of such data,” Mastercard said in the filing.

The payments company has filed more than 35 blockchain-related patents, reports said, and last year announced that developers will gain access to its blockchain technology via API.


Santander, ICICI and Mastercard are only the latest financial services giants to show off their blockchain ambitions. But the technology could pose a threat to these financial institutions, eating away at talent retention and profits.

This week, Moody’s Investors Services released a report warning that Swiss and Canadian banks could take a hit from blockchain, particularly in the areas of cross-border transactions and income from fees. Because blockchain is able to offer faster, more efficient transacting, financial institutions may suffer as a result.

“The net impact on a bank depends on the margin between its costs and income and its ability to adjust this structure in the face of changing technology,” Moody’s said, adding that while blockchain boosts efficiency and therefore may cut down on operational costs for banks, the technology may “squeeze” lenders’ fees and commissions.

“Until now, banks have been able to charge sometimes significant transaction fees and commissions, and the precise exchange rate on foreign exchange transactions is determined by the bank itself (albeit often close to market rates),” the report said, as covered by the Financial Post. “With streamlined payments processes, domestically and internationally, there would be less scope to charge additional fees under mounting competitive pressures.”

According to Moody’s, Swiss banks could be the hardest hit, because as much as 50 percent of revenue at FIs in this market stems from fees and commissions. Canadian banks could be second-hardest hit, the report noted, with FIs in this market seeing about 35 percent of revenue coming from fees and commissions that could be lowered by blockchain tech.

Traditional financial institutions also face more abstract threats from blockchain in the form of talent poaching.

Cryptocurrency wallet company Blockchain hired a former Goldman Sachs executive, Breanne Madigan, this month, the company said this week. While Blockchain didn’t poach the new hire from the FI, it demonstrates the industry’s eagerness to include top talent from the world of traditional finance.

Madigan will serve as Blockchain’s head of institutional sales and strategy, according to CNBC reports, after serving as Goldman Sachs’ head of institutional wealth services. Reports said Blockchain hopes to strengthen its ties to institutional investors with the new hire.