KPMG: Bitcoin - a threat and opportunity for retail banks

KPMG, one of the “Big Four” accounting firms , has published a report stating that Bitcoin is both a threat and an opportunity for the banking industry.

       The report , titled “The Changing World of Money,” outlines several factors that pose a threat to existing retail banks and discusses the potential of cryptocurrencies as a viable payment solution.

       The report states:

       “From banks to P2P lending to PayPal and Bitcoin, these new challengers are smaller , more nimble, and more responsive to changing trends.”

       The report goes on to explain that these emerging payment methods are more responsive to customer needs and can "attract wealthy and intelligent customers and generate revenue from them."

       The problem, KPMG said , is that banks are unable to respond quickly to customer needs, explaining that “their legacy systems , data management , increased regulatory control costs and a growing focus on remediation” are hampering their response speed.

       By considering the three cornerstones of retail banking – lending, deposits and payments – and identifying some of the threats, challenges and opportunities that exist in each , the report compiles a series of hard points for bank leaders about the organizations that will thrive in the short and long term.

       Arguably the biggest question raised in the report is whether the growth of electronic payments, cryptocurrencies and local exchange institutions will eventually make traditional currencies obsolete.

“Giant ledger in the cloud”

       Recognizing the potential of cryptocurrencies , the report encourages economists, policymakers and businesses to start thinking about money differently , while highlighting Bitcoin’s shortcomings.

       The report states that “ [ cryptocurrency ] must operate as a medium of exchange , a store of value, and a unit of account , ” adding :

       “Bitcoin’s use as a medium of exchange is limited because few stores accept it as a payment method. And the price of Bitcoin relative to national currencies can fluctuate by up to 20% a day, so it is still not a reliable store of value.”

       Jon Madonis, former founding director of the Bitcoin Foundation, who described Bitcoin as “a giant public ledger in the cloud , ” was quoted as saying there was no reason why major banks couldn’t take advantage of the growing demand for peer-to-peer cryptocurrencies.

       Banks could conduct in-depth investigations into conducting retail bitcoin transactions and setting up the custodial systems needed , he was quoted as saying.

Heartbeat Payment

       The future of payments is likely to involve all sorts of clever new technologies , many of which are still in the early stages of development and still unheard of for many people.

       For example , this KPMG report describes a proposal from Canadian company Bionym , which has developed what it calls “the world’s first signature authentication wearable payment solution.”

       The solution, Nymi, is a wristband that displays the wearer's unique individual heart rhythm - which is unique to each individual. Once authenticated , the device can be used largely through existing contactless payment systems.

Banks Speculate on Cryptocurrencies

       Earlier this month, ahead of the release of the report , KPMG issued ISAE 3402 certification – the global standard for financial reporting – to cryptocurrency storage provider Elliptic .

       The Bank of England’s 2014 quarterly bulletin , titled “The Digital Currency Economy , ” also speculated on the emergence of a banking system based on digital currencies.

The report states :

       “An important question that may arise then is whether banks are constrained by the broad money they build without regulation or central bank involvement in the management of the underlying monetary base.”