$1.7 Trillion: Banks’ Stance on Blockchain and Bitcoin

Rage Comment : 40% of the bank's annual income comes from global payment services, so the customer base is crucial to the bank, but various new technologies continue to emerge to compete for profit share. Although the position of the bank has not been shaken so far, the emergence of blockchain technology has greatly threatened this source of income for the bank. In 2014, the bank's payment service income increased to 17,000 US dollars, and the proportion of income increased again. Therefore, it is not difficult to understand the bank's practice of avoiding the concept of digital currency, but it is obvious that the bank's subjective will can no longer stop the development trend of blockchain and digital currency.

Translation: Annie_Xu

Banks already know that blockchain threatens the core of their economy — customer relationships, where the $1.7 trillion they made from global payments accounted for 40 percent of their annual profits in 2014.

The banking industry has always provided three main services - finance, investment and trading. Now they are openly denying Bitcoin and highlighting blockchain or distributed ledger.

Do we really need middlemen?

Customer relationships are what connect banking institutions and keep profits growing. Do customers still trust or need banks, after taxpayers were hit hard by the 2008 global economic crisis caused by rash banker decisions, which also brought about a decentralized global currency without middlemen and high fees?

2014 was an exceptional year for the global payments industry, which completely exceeded the most optimistic expectations. Revenues doubled from 4% in 2013 to 9% in 2014, profits increased from US$1.5 trillion to US$1.7 trillion, and the proportion of global payments in bank revenues increased from 38% to 40%.

Related news reports predict that global payment revenue will maintain an annual growth rate of 6% over the next four years and will exceed US$2 trillion in 2020.

Can the bank's competitors win?

While banks have been challenged over time, history shows that most competitors fail. Less than 10% of payment startups made it out of the dot-com bubble of 1997-2000, the most notable of which was PayPal.

Yet most experts predict this time will be different.

Never before in history have banks come up against the world’s largest and most valuable companies, such as Apple, Samsung, Google, Facebook, Microsoft, Amazon and Alibaba.

These companies have loyal and active user bases, have penetrated every aspect of their customers' lives, and have large cash reserves, which not only ensures stable income but also makes them a strong opponent for banks.

Smartphone with smart payment service

Android Pay brought more Android platform users to Google, Alipay brought more e-commerce business to Alibaba, and Apple Pay brought more mobile phone sales to Apple, allowing them to benefit from the existing payment value chain, overturn the existing pricing model, and provide free or significantly lower-than-market-price payment services.

In 2017, the global smartphone usage rate will increase to 50%, as more users become accustomed to the various daily services provided by mobile phones. Some users will abandon banking apps and switch to third-party financial service apps.

33% of US millennials aged 15-33 believe banks will no longer be needed in the next five years.

Even Apple Pay, Samsung Pay and Alipay offer cheaper transactions, and fees from Visa, American Express and MasterCard cut into retailers’ profits.

The biggest threat to bank profits

The digital currency Bitcoin is the biggest threat to banks’ payment service revenues, completely eliminating reliance on banks, credit and debit cards, providing secure, global, free and instant payment services.

Financial institutions, central banks and payment processors know that blockchain is the biggest technological innovation in centuries, rendering existing systems obsolete.

They know that as more people use smartphones and non-bank payment apps, the technology underlying Bitcoin could allow for simpler adoption, and trillions of dollars in annual payment services revenue could disappear entirely.

They cannot control the blockchain, and don’t even know how to regulate it, but they know clearly that they can no longer stop its development.

Bitcoin and the controllable blockchain

Their only option is to ignore it, refute its flaws, and try to deceive mainstream society with the concept of blockchain or distributed ledger, while promoting the benefits of blockchain and controlling it for profit.

When you realize that this is working towards $1.7 trillion in annual revenue, it’s understandable why banks are choosing blockchain concepts over Bitcoin.

I don’t think the name will have any long-term impact as the currency is still moving inexorably towards mainstream adoption and transaction volumes will soar to all-time highs eight years from now.