The definition of crypto has historically oscillated between two poles: buzzword and true innovation.
And to hear the industry’s executives tell it, the lack of regulatory clarity is among the primary reasons surrounding the uncertainty around blockchain’s potential impact, particularly within regulated industries like financial services and payments.
But last week, 50 of the 58 crypto-backed general-election candidates won their U.S. elections, per an AP projection. Eight races, per the same report, remained too close to call as of Sunday (Nov. 10) evening.
On Monday (Nov. 11), bitcoin hit a new all-time high at $82,000, a peak that follows the digital asset’s previous high of $75,000, reached just last week in the immediate aftermath of Donald Trump’s election victory. The crypto sector views the election as a win for them, expecting the new administration and its lawmakers to be far less hostile to the digital asset sector.
“Stop suing crypto. Start talking to crypto. Initiate rulemaking now,” tweeted U.S. crypto exchange Coinbase’s top lawyer on X after Wednesday’s (Nov. 6) election.
With crypto-backed policymakers now pushing a pro-business, pro-innovation agenda, forward thinking financial institutions (FIs), already facing a competitive ecosystem of FinTech and digital-native challengers, are reassessing the idea of blockchain as an opportunity to innovate and remain competitive.
Read more: Blockchain’s Benefits for Regulated Industries
How Blockchain Is Driving Banks to Reinvent Themselves
While some banks were initially hesitant to engage with blockchain technology, fearing instability and regulatory uncertainty, the cryptocurrency ecosystem’s relative maturity now presents different opportunities for banks to re-imagine traditional elements of financial services.
Already as of last Thursday (Nov. 7), UBS announced it had created and piloted UBS Digital Cash, a blockchain-based payment solution, while a day earlier on Wednesday, J.P. Morgan announced a significant enhancement to its own blockchain platform, recently rebranded from Onyx to Kinexys.
Blockchain, the distributed ledger technology underpinning cryptocurrencies, offers banks a potentially disruptive way to increase transparency, reduce fraud and improve the efficiency of transactions — particularly cross-border ones.
PYMNTS wrote recently about the benefits of blockchain-based payments in the face of typical cross-border payment issues such as high fees, slow processing times and the inefficiencies associated with depending on correspondent banks and clearing houses. Data shared by PYMNTS Intelligence indicates that permissioned decentralized finance (DeFi) could reduce transaction costs by up to 80% compared to traditional methods, while features such as automated recordkeeping and smart contracts improve transparency and efficiency, while stablecoins, pegged to fiat currencies, offset volatility concerns.
“Blockchain technology, and public blockchains in particular, are opening up a number of new use cases one of which is to transfer value — such as remittances — from one country to another,” Raj Dhamodharan, EVP blockchain and digital assets at Mastercard, told PYMNTS.
Panel: Visa and Fireblocks Make Business Case for Blockchain-Based Payments
Embracing Blockchain to Compete and Thrive
In an environment where FinTech competitors are quick to highlight their speed and low fees, banks can leverage blockchain to regain a competitive edge. For customers, especially those in multinational corporations, blockchain could represent a shift toward faster, more reliable global payments — a value proposition banks could market aggressively.
“Don’t wait. Start experimenting with blockchain-based payments now, or risk losing out to more agile competitors,” Ran Goldi, SVP, payments and network at Fireblocks, told PYMNTS.
According to the PYMNTS Intelligence report, “Modular Design: Can Composable Banking Find Favor With FIs?,” a collaboration with Galileo, 36% of individuals ages 18 to 24 would choose a FinTech service over their traditional bank for online payments. And 75% of consumers of all ages indicated they would consider switching FIs for better offerings, a significant increase from 52% just three years prior.
“The largest financial institutions are eager to explore tokenized assets,” Nikola Plecas, head of commercialization, Visa Crypto, told PYMNTS, but noted that they require regulatory certainty to do so at scale.
And beyond just regulatory certainty, it is also important for banks to do their due diligence on who they choose to partner with when building blockchain-based financial solutions for both internal and external end-users.
As the ongoing troubles in the FinTech-bank partnership space reveal, standing up innovation quickly should not mean foregoing effective relationship management and risk mitigation best practices.
