News broke at the beginning of July, about Deutsche Bank staff being sent home due to the occurrence of 18,000 job cuts. A photograph showing two men walking next to a Deutsche Bank sign-carrying tote bags with “Bitcoins” written on them went viral on social media, leading many to believe they were one of the thousands that were laid off in the bank’s recent staff cuts.

However, it turned out that a connection with Deutsche Bank was nothing more than a coincidence. With reporters swarming the bank’s offices around the globe, many photographs showing laid-off employees were published, but none made as much of a stir as the now-iconic “Bitcoin Bag Man” photo.

However, this coincidental image did spark a question in the minds of a lot of people; just how far are we from a future predicated on crypto and blockchain in banking?

The beginning of the end for banks

To come up with an answer to the question, we had to look into what was happening in the banking world that led to the vast amount of job cuts and the concerns about continuing the traditional ways of doing things in finance. London proves to be a historical hub for banking and holds more power than some of the world’s biggest banks.

 Even so, there are hints everywhere of a new way of managing and controlling your money daily, and no it is not Bitcoin –but challenger banks. Challenger banks are defined as “relatively small retail banks set up to compete for business with large, long-established national banks.”
These banks are also called App-banks. They are usually extremely consumer-focused and made to be user-friendly; they’re as easy to operate on a day-to-day basis as they can get. What rings a bell about these banks is that they try and play to generate frustrations from the big institutional banks, compared to the traditional banks.

Challenging the legacy

We spoke with Anne Boden, a banking doyenne with 30 years of experience in some of the most superior financial institutions in the world, and now the founder and CEO of Starling Bank –one such challenger bank based in the UK.

It was fascinating talking to her about the future of banking. She was aware of Bitcoin, Blockchain, and the potential it has in the banking sector, although she believes that its time to shine is still far from the horizon.
In her freshly released book called “The Money Revolution”, she states that: “[Blockchain] is easily the most revolutionary money change on the horizon and may make a huge difference across the fintech sector.”

Her opinions on how traditional banks will need to evolve due to several crucial factors were fairly understandable and could be viewed in the same way, but using Blockchain and cryptocurrency.

Also, read – What does the future of Blockchain look like in 10 years?

“I spent 30-odd years in traditional banking, I worked for all the big banks, I worked for Lloyds Bank, Standard Chartered, UBS, Zurich, and RBS. Then I went into AIG, post-financial crisis, to do the turn-around and I concluded that it was easier to start a new bank than to fix the old,” Boden discussed with us.

Inarguably, the legacy of banking and the way of getting things done has become so outdated that the wants of the banks and the needs of the customers usually do not work together with anymore – especially daily. Challenger banks are this fresh start that customers have been waiting for, but in comparison, cryptocurrencies and Blockchain could prove to be a fresh system altogether.

“In this era, it is people like Atom, Monzo, and Starling that have come to market, and the ones that have been successful are the ones that have built their technology,” Boden told us. “All these organizations have been called challenger banks, but you can only really disrupt when you have a current account – because people are using that every day – and when you have your technology.”

Here, Boden is not necessarily referring to that particular technology as being Blockchain; however, one can assume due to various reasons how Blockchain could be a prime example of disruptive technology for the banking sector. The world is dynamic, and the way people do everything keeps evolving, and this is also down to technological advancements.

“Customers have changed. Customers are buying music differently; they are shopping on Amazon; they are doing things very differently,” said Boden. “Technology has changed. Everyone is wandering around with their smartphones, these phones have better penetration than the laptop, and then all the time the regulations are changing as well, and that is a perfect storm to bring something like Starling to the market.”

Starling is one of several challenger banks that are delivering to gain dominance over this sector, with their customer-focused attitude, their easy everyday usability, and their technologies. Their success is a challenge to institutional banks, but because this is a dynamic and rapid space, challenger banks are already being challenged by competitors.

A new weapon in the game

Challenger banks, App-banks, mobile payment companies, merchant services aggregators, and peer-to-peer payments companies, are all financial services that are eyeing pieces of the pie that traditional banks have stood by for so long – and it is not just a UK based phenomenon. 

Circle, Square, and even Revolut, which is coming to the USA are forces that are breaking through in the financial space, but what they all have in common is a cryptocurrency offering. Cryptocurrency may still be a long way off from being as popular as the Pound or the Dollar in regards to payments, as said by Boden; but some of these companies are looking for the chance to use this alternative payment method if the customers are inclined.

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This took us to the offices of two such other challenger banks in the UK, namely Wirex and Zeux. Both companies work as alternative banking solutions, allowing for money transactions and payments, but they both also have cryptocurrency offerings. These offerings are not nearly as popular as the general fiat services offered by institutions like Starling, yet –as they are not supposed to be.

“App-banks, or digital banks, are making things more convenient for everyday customers to manage their banking,” Frank Zhou, CEO of Zeux, told us. “There are a lot of needs in the early adopter space who are interested in cryptocurrency, from trading, investing, using it for payments. Those types of customers are easier to reach as they follow the newest developments and are willing to give it a try.” 

Pavel Matveev, one of the founders at Wirex, explained that the use of cryptocurrencies need not only be for experimenting as there are tangible use-cases within the payment sphere existing already.
“While App-based and digital banks offer a more convenient means of managing money, they are still largely based on conventional payment infrastructure. This means that cross-border payments still take 3-5 days to settle and command relatively high fees,” said Matveev.

“Decentralised digital currencies have the potential to revolutionize many aspects of the payments industry due to their transparency, mobility, and ease of use,” added Dmitry Lazarichev, also a founder of Wirex. “One of the most significant areas is international remittance. Cross-border crypto transactions are significantly faster than conventional methods of transferring money abroad and require very little in the way of fees.”

Different offerings

What Matveev and Lazarichev, as well as Zhou, said about including cryptocurrencies into the new phase of banking, reminded us of Boden’s envisioning for the future of the fin-tech industry. The two crypto-offering App-banks hope that they can fill small niches for people interested in this new technology, and for Boden, the view is that traditional banks will face tough competition among these small niches of finance services. 

“What is going to happen is other things happening in the environment will catch up with the banking industry, they will surprise the banking industry,” said Boden. “The combination of 5G internet of things, self-driving cars, AI, and machine learning will change the profile of how payments are made. So I think that the nature of payments will change and you will get new entrants providing some of those new payment mechanisms, and I think in that environment the incumbent banks will find it harder to compete. Some will survive and mutate to something relevant, and many of them will die.”

If cryptocurrency does become one of the new payment methods in the future, offering a service that is usable to the customers is important. Zeux may look at this as using crypto for general payments, whereas Wirex may see remuneration as the key for digital currencies, it is difficult to choose which one of them is more right, so we’ll agree to disagree. And maybe that is the point, this will make available several offerings in the future.

“Like previous studies of mass adoption, it happens when the majority can use it as easily as they would use it normally. For example, from cash to PIN card, PIN card to contactless cards, contactless to mobile payment. An easy-to-use experience is a key to bringing adoption,” said Zhou. “I think the market is ready for crypto mass adoption. But, there needs to be a solution before the mass demand surfaces. Once all the customers know they can spend their cryptos easily everywhere in any shop, it increases their willingness to accept cryptos as payment in the first place. Mass adoption only happens after the solution appears, not before.”

A changing future

The banking world has, over the last century, continued in pretty much the same old way with little to no threat from alternative methods or technologies. That is all evolving and changing in the current day scenario. People might believe that the power of blockchain in the financial system, and the introduction of cryptocurrency may shake up the entire banking space, but they would be wrong.

It is unlikely that the banking industry will start to incorporate Blockchain soon, as Boden explains: “I think that blockchain is likely to be used in certain aspects of the banking business, so probably for trade finance where you have lots of parties collaborating on a transaction, but I think you will see blockchain implementation in niche areas of the business, you won’t see it as a wholesale change for the banking platform.”

However, for an entire, legacy-based magnitude of such a traditional industry to overtake its entire system for a budding technology would be reckless.

However, cryptocurrencies are about to gain more appeal, which is not saying that these two sides of the same industry will be what change the face of banking altogether. Still, the face of banking is evolving constantly, and that is why traditional banks that are unaware of this are starting to show cracks.

 Usage of money and payments take place every single day by every single one, and because of the needs and demands of the customers, the different financial services are emerging in the market fast, and unknowingly, we as consumers are using them. Some may already be offering Blockchain and crypto services, while some may not, but to say that the future of banking is only Blockchain and crypto is unlikely and short-sighted –as there are much bigger consumer demands existing and many more niche markets in this sector to be filled.