MIT report: Is blockchain a new era for banks or the emperor's new clothes? (Download the full text)

Rage Review : MIT released a new report exploring the disruptive impact of blockchain on traditional banking. Is it the dawn of a new era, or the emperor's new clothes? It is well known that after the Internet, the speed of high-tech updates is amazing, and all walks of life have become more efficient. However, the traditional banking industry, which is protected by strict regulatory policies, has maintained processes that have been in place for centuries. Obviously, the banking industry has great potential and space for change.

Translation: Annie_Xu

Will the rapid development of Internet finance bring an end to banks as we know them? A recent report by MIT, titled “Digital Banking Manifesto: The End of Banks,” explores several possibilities.

Innovation has brought about revolutionary changes, and leaders have emerged in many industries, including retail (Amazon), travel (Expedia), communications (Skype, Whatsapp), and so on.

However, the banking industry has been little affected, and traditional banks that have existed for centuries are still the leaders in this industry. Although there are some changes in the banking process, such as the emergence of ATMs, mobile banking, and online banking, its basic business model has not changed.

The bank's solid position

The most important asset of a bank is its operating license. This extremely high regulatory threshold has always inhibited the intensification of competition.

Therefore, in the absence of better alternatives, consumers have no choice but to use local banks even if the banks have many flaws and the service level is not satisfactory.

The bank's negligible deposit interest rate barely offsets the risk taken by consumers. However, banks still use traditional systems, operate many branches, and support many employees, but they cannot give consumers a better deposit return rate.

The Emperor's New Clothes

Today’s banks are weighed down by legacy infrastructure and, while they have adopted some technological innovations, they have shied away from large-scale change.

Mark Mullen

In 2015, Mark Mullen, CEO of Atom Bank, the UK’s first mobile bank, said:

“Banks are trying to be trendy and build cool digital front ends. But it’s like a piggy with lipstick on it, it’s still a piggy; the new banking front end still has a crappy digital back end.”

Truly innovative digital banks should adopt the latest technologies, such as encryption, distributed ledger technology, artificial intelligence, etc. The complete automation and digitization of the entire banking process can make banks in the new era more efficient and flexible.

Not necessarily choosing Bitcoin

Of course, digital currencies must be part of the future of digital banking. However, despite Bitcoin’s fame, reports suggest that Bitcoin is not suitable for high transaction volumes because its transaction processing capacity per second is too low.

Although theoretically, this problem can be solved by increasing the block size; but first a consensus must be reached on modifying the Bitcoin protocol. Therefore, other digital currencies, including those backed by central banks, can become the new era of bank currencies.