Blockchain Banking: Where are the Disruptors?

Blockchain Banking: Where are the Disruptors?

A few days ago, KPMG released a report entitled: “The Case For Crypto and Institutionalisation.” The document constitutes an explicit admission from one of the big names within traditional financial services that blockchain technology’s capabilities are a natural solution for “addressing problems in the global financial services ecosystem.”

The report’s authors work from the assumption that traditional banks will embrace blockchain tech because its inherent qualities – immutability and transparency – make for a natural fit with banking services; and, as such, will result in an inevitable move towards a much fairer and much more efficient banking system.

In practice, however, established banks are doing very little to indicate that they are heading in this direction. The banking system has, up until now, enjoyed protection from high entry barriers which has in turn held back the kind of competition that might otherwise encourage the kind of upgrade for which the industry has been long overdue.

2008: Harbinger

As the world’s leading banks indulged in the questionable practices that brought us the 2008 crisis, a clear message emerged from governments that had to step in to save the global economy: we respect (and fear) you too much to ask for anything that could help us avoid these kinds of crises in the future.

One of the fall-outs of the 2008 crisis was, then, a clear indication to banks themselves that, whilst many were too big to fail, they were also too big to reform.

In this context, it is now more unlikely than ever that established banking will want to embrace the vast potential offered by distributed ledger technology – particularly when there is still too much profit to be made from muddy practices in relation to lending, arbitrary charges applied to routine operations and flaky management of the scriptural money supply.

Blockchain Full Reserve Model

If the blockchain does intend to disrupt banking, the challenge will likely have to come from elsewhere. A number of projects have emerged in a bid to do so including Baanx, BABB, Platio and PumaPay.

The latest entrant into the space is a Swiss project known as Mt Pelerin. Their proposition, however, is one that arguably goes further than other competitors in the field. The project team plan to create a complete banking service using a full reserve model.

In other words, unlike traditional banks, this is a bank that does not intend to leverage its customers’ deposits as a route to profit. Clients will retain full control over their own account liquidity. So how can such a banking model be profitable? The simple answer is: tokenisation.

A blockchain platform can, first of all, offer P2P services. In other words, customers can lend money directly to businesses or other customers. The bank, in other words, now simply acts as an intermediary via its smart contracts to ensure the usual compliance, and it is the platform’s clients who provide liquidity, if they give their specific consent to do so.

“We plan to be the safest bank in the world for its customers’ deposits,” states Arnaud Salomon, CEO and founder of Mt Pelerin.

And by offering other blockchain-secured smart contracts along with an API to accommodate external products and services, the Mt Pelerin team believe that they are proposing one of the most democratic banking models ever proposed.

Banking is seen by some as the leading candidate for blockchain-inspired, industry-wide disruption, although most analysts do not envisage any observable changes for at least the next decade.

Currently planning for a banking license expected in late 2019, the Mt Pelerin project team may have just sent out a signal that the traditional banking model will meet its blockchain executioner much sooner than expected.