Bank Alliance, are you ready with your weapons?

Crazy Commentary : On September 8, 2016, the People's Daily published an article titled "Why Traditional Banks Are Targeting Virtual Currency", which commented on the recent phenomenon that four major global banks, including UBS, Deutsche Bank, Santander Bank and Bank of New York Mellon, and brokerage firm IBFX have joined forces to develop digital virtual currency. It believes that the significance of their actions lies not only in discovering new application platforms for blockchain technology, but also in an industry-wide counterattack by traditional banking against the challenges of Internet financial technology.

Author: Lydia

Traditional banks VS new Internet financial companies

In recent years, the development of various Internet financial companies such as third-party payment, online lending, and online financial management has sprung up like mushrooms after rain, with a great momentum of overwhelming. It can be said that it has subverted the organizational structure and theoretical system of traditional finance. Its emergence and development has undoubtedly brought systematic challenges to the survival of the traditional banking industry. With convenient and fast payment methods, extremely high capital allocation efficiency, and low transaction costs, Internet finance is bringing comprehensive and systematic challenges to traditional commercial banks. Faced with sensitive market perception, Internet financial companies have repeatedly introduced new products, which has made traditional banks frequently take on the challenge. At one time, Yu'ebao had already made traditional banks exhausted. After Yu'ebao's interest rate was reduced, banks lifted the threat, but it really made banks sweat and still have lingering fears. At the regulatory level, the innovative development of Internet finance has been encouraged, while the innovation of the banking industry has been subject to many restrictions and even unsustainable. Relevant people in the industry said that banks are competing with Internet finance in shackles. In this situation, how can traditional banks respond to change?

Traditional banks actively seek change and seek PK skills

Recently, on September 8, 2016, the People's Daily published an article titled "Why Traditional Banks Are Interested in Virtual Currency."

The article mentioned a report that four global banks and brokerage firms, including UBS, Deutsche Bank, Santander Bank and Bank of New York Mellon, have begun to jointly develop a new form of digital currency, the "Multi-purpose Settlement Coin", which will be used for future inter-bank cross-border payments and financial transaction settlements, and plans to promote it to central banks in various countries, striving to put it into commercial use in early 2018. The four major banks believe that this digital currency will become the industry standard for clearing and settling financial transactions using blockchain. Blockchain was originally the underlying technology supporting the digital currency bitcoin.

The introduction of such a digital currency is expected to bring several benefits to banks and their customers:

1. Complete transactions instantly and significantly reduce transaction time.

2. Automatically identify transaction records on the regional chain to simplify things.

3. It has its own transaction record feature, which makes it traceable in anti-money laundering and anti-illegal transactions.

Finally, new financial technology innovations can be connected to the virtual currency system, such as smart contract technology, which is also based on blockchain.

The concept of blockchain is no longer unfamiliar to everyone, and Bitcoin is now a household name, which has been controversial to this day. According to a report released by the World Economic Forum last month, banking executives were initially reluctant to endorse Bitcoin because the technology was once used for drug trafficking and criminal activities. But now, many banks are focusing on developing various methods to create various blockchains that do not require the use of Bitcoin.

Blockchain, also known as distributed ledger, is attractive because it can transfer funds and track transactions in a more secure, transparent and efficient way.

The report also predicts that blockchain technology will occupy a core position in the global financial system. It is estimated that about 80% of banks around the world will launch distributed ledger projects next year.

A technological counterattack without gunpowder

The People's Daily article also believes that the significance of the four traditional banks' research and development of virtual currency is by no means limited to discovering new application platforms for blockchain technology, but is more like an industry-wide counterattack by the traditional banking industry against the challenges of Internet financial technology.

Overall, an invisible battle in Internet finance has become increasingly fierce, and one wave of counterattacks and self-defense wars has not subsided and is intensifying. Traditional banks seem to have no choice but to revolt. They are in a dilemma and will retreat if they do not advance. Can "an industry-wide counterattack", a bargaining chip for a desperate counterattack - blockchain technology, help traditional banks regain their status as the financial leader?

McKinsey: “Traditional banks don’t need to worry too much”

Not long ago, global management consulting firm McKinsey released a series of reports on China's banking innovation, including "Disruption and Connection - Decoding China's Internet Financial Innovation", "Fintech's Comprehensive Impact on the Banking Industry and Banks' Response Strategies", "Blockchain - A Disruptor of the Rules of the Banking Game" and "Leading Innovation, Are Chinese Banks Ready?".

Regarding the challenges faced by banks, McKinsey stated that banks do not need to pay too much attention to individual "challengers" in the fintech industry, but should focus more on the capabilities represented by these challengers, and then cultivate these capabilities that are crucial to the digital future within the company or purchase them from outside.

In the face of the opportunities and challenges of blockchain technology, the McKinsey report provides three action suggestions for China's banking industry:

(1) Domestic banks should clarify their strategies for participating in the application of blockchain technology as soon as possible.

(II) Rapidly advance the pilot implementation of business application scenarios.

(III) Actively invest in layout, make small investments, cast a wide net, and make reasonable layout.

McKinsey's survey of bank executives shows that about half of them believe that blockchain will have a substantial impact within three years, and some even believe it will happen within 18 months. How Chinese financial institutions can seize strategic opportunities in this rapidly developing wave of technological innovation and take the initiative in disruptive financial models is an issue that all decision makers should consider immediately.

The report believes that Chinese bankers must form a clear strategic perspective as soon as possible, promptly understand how blockchain technology will help or pose challenges to banking business, actively cooperate with peers and technology companies, explore possible application scenarios, and put them into practical action as soon as possible.

Barclays completes first blockchain trade finance transaction

Recently, according to FINANCIAL EXPRESS media reports, Barclays Bank and an Israeli startup successfully completed a transaction through blockchain technology, shortening the process from 7 to 10 days to 4 hours. Both parties said that this kind of transaction was the first real scene in the world. This is of great significance, as it proves that the technical feasibility is in place.

Although Barclays calls the transaction the first of its kind in the world to be completed in the real world rather than in a laboratory, it is not the first institution to experiment with blockchain technology in trade finance.

It was previously revealed at the Davos Forum that Bank of America has applied for more than 40 patents in the field of blockchain alone, which may be the largest number of patent applications among American financial giants. In addition, Bank of America has participated in almost all alliances and organizations related to blockchain.

Major banks have successively deployed blockchain

More than 40 leading financial institutions including Citibank, BBVA, JPMorgan Chase, Morgan Stanley, and UBS have jointly established the R3CEV Alliance, which aims to promote the formulation of blockchain technology standards suitable for financial institutions and promote the implementation of technology. On May 25, China Ping An Financial Group has joined the financial innovation company R3, becoming the first member from China.

In addition to Ping An of China joining the R3CEV Alliance, the China Distributed Ledger Foundation Agreement Alliance (China Ledger Alliance), which was established in April 2016 under the leadership of Wanxiang Blockchain Lab, indicates that China will also join this global blockchain competition to promote the application of blockchain technology in various countries and fields around the world. The alliance is composed of commodity exchanges, property exchanges and financial asset exchanges in 11 regions, and the China Securities Association Internet Securities Committee under the China Securities Regulatory Commission serves as a project consultant. The main task is to jointly study blockchain technology, starting from over-the-counter transactions, combining Chinese policies and regulations with the unique business logic of China's financial industry, and developing blockchain technology underlying protocols that conform to China's policies, national standards, business logic and usage habits.

China Merchants Bank later joined the R3 blockchain alliance, becoming the second Chinese financial company to join after Ping An Insurance. Tianhong, general manager of the IT department of China Merchants Bank

Zhou said: As a technologically advanced bank, China Merchants Bank has been actively exploring new technologies and applying them to banking business. Blockchain has great potential in the banking industry.

China Merchants Bank is leveraging R3 to provide the innovation it needs to promote the development of a range of financial services and processes.

Cooperate in competition and win together in cooperation

When others take away your cake, besides panicking and getting confused, you usually need to keep a low profile for a while, truly strengthen your own technology from within, and actively seek cooperation for common prosperity. Only in this way can you dance with the wolves under the disruption of Internet financial technology and dance out China's true future of digital inclusive finance.

It is still unknown who the winner will be, perhaps it will just be a war of blockchain technology weapons.