The definition of cryptography has historically oscillated between two poles: buzzword and true innovation.
And according to industry executives, a lack of regulatory clarity is one of the main reasons surrounding uncertainty surrounding blockchain’s potential impact, particularly in regulated industries like financial services and payments.
But last week, 50 of 58 crypto-backed general election candidates won their U.S. elections, according to an AP projection. According to the same report, eight races remained too close to call on Sunday evening (November 10).
On Monday, November 11, bitcoin hit a new all-time high of $82,000, a high that follows the digital asset’s previous high of $75,000, reached last week immediately after Donald Trump’s election victory. The crypto industry views the election as a victory for it, and expects the new administration and its lawmakers to be much less hostile to the digital asset industry.
“Stop pursuing crypto. Start talking about crypto. Initiate rulemaking now,” the top lawyer for US crypto exchange Coinbase tweeted at X after Wednesday’s (November 6) election.
As crypto-backed policymakers now push a pro-business, pro-innovation agenda, forward-thinking financial institutions (FIs), already facing a competitive ecosystem of FinTech and digitally native challengers, are reassessing the idea of blockchain as an opportunity to innovate and remain competitive.
Learn more: The benefits of blockchain for regulated industries
How blockchain is pushing banks to reinvent themselves
While some banks were initially hesitant to engage with blockchain technology, fearing instability and regulatory uncertainty, the relative maturity of the cryptocurrency ecosystem now offers banks different opportunities to reimagine traditional elements of financial services.
As early as last Thursday (November 7), UBS announced that it had created and piloted UBS Digital Cash, a blockchain-based payments solution, while a day earlier on Wednesday, JP Morgan announced a significant improvement to its own blockchain platform, recently rebranded from Onyx to Kinexys.
Blockchain, the distributed ledger technology that underpins cryptocurrencies, offers banks a potentially disruptive way to increase transparency, reduce fraud and improve the efficiency of transactions, particularly cross-border ones.
PYMNTS recently wrote about the benefits of blockchain-based payments in the face of typical cross-border payment issues such as high fees, slow processing times, and inefficiencies associated with reliance on correspondent banks and clearinghouses. 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 like automated record keeping and smart contracts improve transparency and efficiency, while stablecoins, linked to fiat currencies, compensate. volatility issues.
“Blockchain technology, and public blockchains in particular, open up a number of new use cases, one of which involves transferring value, such as remittances, from one country to another,” he said. said Raj Dhamodharan, executive vice president of blockchain and digital assets at Mastercard. PYMNTES.
Sign: Visa and Fireblocks justify blockchain-based payments
Adopting blockchain to compete and prosper
In an environment where FinTech competitors are quickly touting their speed and low fees, banks can leverage blockchain to regain a competitive advantage. For customers, particularly those of multinational corporations, blockchain could represent a shift toward faster, more reliable global payments – a value proposition that banks could market aggressively.
“Don’t wait. Start experimenting with blockchain-based payments now, or risk losing out to more nimble competitors,” Ran Goldi, senior vice president of payments and networking 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 aged 18 to 24 would choose a FinTech service rather than their traditional bank for online payments. And 75% of consumers of all ages said they would consider switching FIs for better deals, a significant increase from 52% three years ago.
“Larger financial institutions are eager to explore tokenized assets,” Nikola Plecas, head of commercialization at Visa Crypto, told PYMNTS, but noted they need regulatory certainty to do so at scale. .
And beyond just regulatory certainty, it’s also important for banks to do due diligence on who they choose to partner with when building blockchain-based financial solutions for internal end users and external.
As persistent problems in the FinTech-bank partnership space reveal, innovating quickly should not mean forgoing best practices in effective relationship management and risk mitigation.
