We are seeing a host of news coming against Bitcoin, it’s bad, it’s a Fraud, and not real. Quite a bit of it is from large banks and large investors, who have invested heavily in the financial institutions.
For us to understand it we have to look into where banks are making their money and how Bitcoin is basically eating their cake and might be possibly disrupting their business altogether.
Investment banking-One of the biggest source of income for large banks is investment banking. With ICO’s new ideas and companies with a dream there is no need to knock on banks door to underwrite. They can go directly to market with an ICO. I have friends who are coming up with fantastic ideas to serve different business sectors. Great ideas and no need for bankers. For example one of my friends is working on a plan to bring the humanity and charity with sweepstakes’. Great idea and will be a great success and no need for a banker.
Money Transfer- If you have transferred money from a bank either in the form of wire, money order, draft we all know the fees we are charged. Try an international wire or transaction and catch up the fees. Just imagine the huge trade and international transactions that are happening every day across the world. Banks are making tons of money and no wonder worried about with cryptocurrencies there is any need for intermediaries. All these fees in billions of dollar will be hard to justify when with time Crypto transfer fee will reduce to a minimum. Thanks Bitcoin.
Transaction fee, Processing fee- Whatever product or service you buy the merchants is on the hook for 2.5% to 7% transaction fee or higher. The large merchants both online and brick and mortar on an average pay are 2.5% merchant processing fee. If, they start accepting crypto payments this fee will be reduced significantly.
Deposits- Banks make money on spread on the deposits we make. So, lesser the deposit, higher the interest they will have to give to garnish these deposits. Imagine if we start keeping all our deposit in cryotocurrencies. In that case, banks will have to invest a significant amount of money to serve this economy.
Trading- Large banks are involved in the mammoth amount of trading of stocks, commodities, currencies etc. They currently do not have a trading desk what are catering to crypto clients. Money is moving away to other institutions what are catering to this sector. The question is can banks adapt to this world and how they integrate the Bitcoin economy with theirs?
Large investors, in banks are worried and very often come against Bitcoin, and it is understandable. They have a huge amount invested in the current banking system, they won’t give up easily. Resistance to change is natural but we will see with time, some bank will be forefront and start offering services in Crypto marketplace. The regulators, on the other hand, are pragmatic and are on the other hand considering Fintech Charter.
Only time will tell how fast this crypto revolution will take over our wallet and bring in a new way of banking. Mass adoption of bitcoin and other currencies will force these large banks to the new way of life.
Welcome to the world of Bitcoin.
Robin Trehan is a banking expert