Swiss banks are still a force in cross-border business, but this hegemony could be threatened from blockchain, the new kid on the financial center stage.
Blockchain technology promises to pose considerable disruptive potential to traditional banking practices. Particularly in Switzerland, where the global and highly active blockchain and crypto currency scenes are establishing themselves, the technology is finding enthusiastic support. This includes traditional banks, who could generate efficiencies from using blockchain technology.
This could mean banks threatening their own existence, according to a study by rating agency Moody's (behind paywall). While Blockchain has the potential for significantly cutting time and financial transaction costs, it could also pose a considerable threat to the future of the Swiss financial center, the study notes.
Income At Risk
Moody's analysis reckons use of the technology could limit processing fees and commissions, with half their revenue emanating from these services. This would make the Swiss financial center vulnerable if the use of Blockchain succeeds in lowering global transaction costs.
«While making cross-border transactions faster and cheaper would be credit positive for banks, these efficiencies could also compress their fees and commissions, a credit negative», Moody's adds.
Advantage Turned Disadvantage
The Swiss financial system, together with those in Great Britain and Belgium, could suffer the most disruption from the technology that drives crypto currencies such as Bitcoin, it claims.
«The use of Blockchain by banks will lower their revenues». By contrast, there are the benefits from lower costs and risks in the transaction businesses,» says Colin Ellis, Managing Director at Moody's.
Blockchain? Yes. Crypto? No
While the view in the traditional Swiss financial sector is that Blockchain represents a promising technology where more research and development is needed, a new start-up sector is already flourishing in Zug, where the use of Blockchain is boosting the creation of, and trade in, crypto currencies.
Crypto currencies like bitcoin, litecoin or rther are instruments which banks are generally avoiding, with some institutions even refusing access to business accounts for crypto start-up companies.
Blockchain as a Catalyst
Only a few banks, like the Zurich-based Falcon Private Bank, now offer clients asset management services using crypto currencies. Moody's scenario suggests traditional banking and crypto banking will increasingly merge, with Blockchain as the catalyst.
Which banks, financial institutions or start-ups will emerge as winners from the current developments will depend on how they manage to utilize Blockchain as a profit generator in their value-creation chain.
