Discussion on blockchain technology ignites Davos Forum

The World Economic Forum kicked off its first debate in Davos this week on the future of financial services, and it resulted in a kerfuffle.

Davos elites did not rush to hear the discussions about the financial crisis and regulatory reform that dominated the World Economic Forum's agenda in recent years. These topics were largely absent from this year's agenda, and the hot topic became how financial technology will completely change the world of money, with topics such as blockchain far more popular than discussions about Basel III.

But critics say the shift is ahead of the curve. After all, the day-to-day issues facing most senior bankers are still dominated by regulatory reforms, with some eurozone banks still grappling with crisis legacies, such as Italian bankers who have been eager to allay concerns about bad loans.

But bankers at Davos insist that the industry is in its best shape since before the financial crisis: capital reserves are higher, risks are lower and operations are leaner. A survey this week by Edelman, the public relations firm, even showed that public trust in banks is rising.

Andrea Orcel, chief executive of UBS's investment bank, said: "Looking at the capital levels, supervision and risk management of the banking sector today, I strongly believe that the banking system is significantly stronger than it was before."

But that doesn’t mean the industry is out of the woods. “Trying to get the right risk-reward ratio from banks is challenging, given the economic conditions, regulation, markets, and the necessary shifts in business models and cost structures, and competition is increasing,” Orsell said.

The most intense source of this competitive challenge is fintech and its potential to disrupt the status quo. It is impacting many aspects of the financial industry, including back-office payments, investment advisory, and retail payments.

This would trigger a radical change: the head of a major European bank told an audience at Davos that in another decade, cash might “no longer exist in its current form”.

Meanwhile, the International Monetary Fund this week published its first white paper on virtual currencies, arguing that while they are still very small — they have a combined market capitalization of $7 billion, compared with $1.4 trillion in U.S. paper money in circulation — they are growing so fast that policymakers and bankers need to pay attention.

Many of the first-time fintechs are hoping to capitalize on the financial revolution to disrupt incumbent banks. Banks are trying to fight back by developing their own fintech capabilities and by partnering with — or acquiring — tech startups.

Executives at JPMorgan, for example, expect the bank to begin using blockchain — the data block technology that enables electronic payments — to process loan transactions in the coming months.

Many new entrants into finance argue that incumbent banks are too slow to compete with upstarts, while veteran financiers counter that the fintech talk is overhyped.

For example,区块链问题are particularly contentious due to the controversy surrounding the virtual currency bitcoin.

“We know that bitcoin itself is a complete failure, proving the first law of programming and software: anything that is written can be broken. So there is no such thing as absolutely secure and foolproof technology,” said Willem Buiter, chief economist at Citi and a former member of the Bank of England’s rate-setting committee. “Network noobs . think this thing will just work by itself and form a seamless network around the world at zero cost. Don’t dream.”

Yet no one expects such cynicism to dampen enthusiasm for fintech at the World Economic Forum, given that the official theme of this year’s meeting is focused on technological revolution.

The new key debate in finance is whether new entrants will be subject to the same regulation as existing banks – or whether these groundbreaking changes mask a host of new risks under the guise of “innovation”.

"If you're going to be in finance, financial regulation should apply to everyone the same," said Cathy Bessant, chief technology officer of Bank of America. Bessant stressed the need for banks to harness the power of technology and innovation without reducing the industry's ability to absorb and respond to risks.

This time next year, regulation may once again be at the forefront of the financial debate at the World Economic Forum.

Original link: http://www.ftchinese.com/story/001065894?ccode=2G162001