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Concerned by the possible uberisation of banking, the sector is preparing for an upcoming technological upheaval.
The experts are convinced: the blockchain will disrupt finance. And the industry is taking these predictions very seriously, with 90% of large banks in North America and Europe currently exploring blockchain solutions to prepare for the upcoming disruptions. “Bank of America alone has filed 43 patents relating to blockchain technology,” says Demelza Hays, fund manager at Incrementum. “Central banks are also taking a strong interest in this technology, especially in the United States, the United Kingdom and Singapore.”
While the entire financial industry is on the alert, it is transactions that will likely be affected first: “Tokens will prevail as a payment method,” says Lewin Boehnke, head of research at Crypto Finance in Zug. The revolution seems inevitable, especially since the blockchain would drastically reduce both time and costs. Indeed, for banks and their clients, most of the current fees for transactions – and international wire transfers in particular – can be attributed to trusted third parties that are involved in the complex process. Hence the idea of cutting out these middlemen.
On that front, a company called Ripple and its XRP token have been quite the topic of conversation for the past few months. The Californian company is forming multiple partnerships with big names in the industry. The potential for reduced transfer costs has convinced potential clients. According to numerous studies, the banking industry as a whole could save between $8 billion and $12 billion annually by using the blockchain. And what about the time savings? An international payment can currently take up to several days, an anachronism of which Ripple is making a mockery, proposing the same transaction in just a few seconds. In May, the company trialled a money transfer from the United States to Mexico in a real-life situation using the XRP token. It took a grand total of two minutes.
But despite these impressive tech credentials, the road to success will be long and perhaps even risky for the US-based start-up. According to many crypto-enthusiasts, XRP is nothing more than a centralised token used in merchant transactions, which goes against the original libertarian and emancipatory spirit of the blockchain. Purists will pass right over it. But that may not be the most pressing issue for Ripple and its clearly stated ambitions. According to William Mougayar, chief investment officer at JM3 Capital: “While Ripple’s solution can accelerate transactions, it is up against an extremely conservative industry that has a strong risk aversion in terms of marginal gains. To be successful, XRP would have to be massively adopted, and I think the barriers to that are too high to overcome.”
And banks are also on the war path, seeking to master these technologies by developing their own systems using private blockchains. For example, since 2015, the New York consortium R3, a group of some 100 companies including BNP Paribas, Credit Suisse and UBS, is working on a blockchain network that is “fully interoperable” for facilitating information exchanges between banks. The older SWIFT – the interbank transfer network founded in 1973 – is also trying to safeguard its hegemony. The door seems to be closed tight, for now.
At the end of the day, stock exchange platforms could be the Trojan horse for virtual currencies such as XRP, as they would contribute to their largescale adoption.
And here once again, Switzerland is at the forefront. In June, the financial market operator SIX announced the launch of SIX Digital Exchange (SDX), an infrastructure dedicated entirely to digital asset trading, subject to supervision by FINMA and the Swiss National Bank. The first services are set for launch in mid 2019.