Blockchain disruptions to have mixed credit implication for banking system

Technology has potential to reduce costs and time in cross-border transactions: Moody’s

LONDON, April 16: Blockchain technology has the potential to significantly reduce the costs and time involved in cross-border banking transactions, increasing banks’ efficiency but putting pressure on their fees and commissions, Moody’s Investors Service said in a report today.

While making cross-border transactions faster and less expensive would be credit positive for banks, these efficiencies could also compress their fees and commissions, a credit negative.

Moody’s report focuses on two specific areas in order to assess the potential disruption that Blockchain could cause: cross-border transactions and fee and commission income. The report notes that these are just two of the channels through which the technology is likely to impact bank operations.

“Blockchain has the potential to substantially change how a wide range of financial services are executed,” said Colin Ellis, Moody’s Managing Director — Credit Strategy and the report’s co-author. “Banks could benefit significantly from the development and implementation of blockchain technologies in terms of enhanced efficiency, cost savings and risk reduction.

“But the adoption of these technologies will also limit processing fees, commissions and gains on foreign exchange transactions, which will pressure revenue.”

Swiss banks would be most exposed to reductions in fees and commission, with 50% of their revenue coming from that source. Italian, Canadian, and Israeli banks follow at around 35%. Meanwhile, banks in Asia Pacific, as well as some smaller European periphery countries, are relatively less prone to relying on fees and commissions in generating total revenue.

Banking systems with significant cross-border transactions — including those in the United Kingdom, Belgium and Switzerland — may see the most disruption from the technology that underpins cryptocurrencies such as Bitcoin.

The report, “Banking — Global, Blockchain efficiencies could streamline transactions but reduce banks’ fee income”, is available on www.moodys.com. Moody’s subscribers can access the report using the link at the end of this press release. The research is an update to the markets and does not constitute a rating action.