Blockchain technology is well known to help individuals not necessarily professional firms – whether than be through ‘rebittance’, having a ‘wallet’ to make transactions, or trading and dealing bitcoins. It’s fast, it’s cheap and it’s safe.
Transactions can theoretically instantaneous because they have ‘zero confirmation’ – that is the merchant takes on the risk of accepting an unapproved transaction. Bitcoin transactions are minimal and often free. For both users and merchants. Meanwhile credit card companies charge upwards of 3 per cent in annual fees. Whilst credit card information is constantly being stolen online through insecure gateways, bitcoin transactions run through a combination of public and private information (a ‘public key’ and ‘private key’).
Getting into the professional services league
But there is another group that Blockchain technology at large can help – in the professional services field. Large professional firms like EY, Deloitte and PwC, with large auditing arms, could be the ideal conduits of disruptive technology. Indeed, this has been seen especially in the last five years, as the Big 4 aggressively hire fintech experts and cybersecurity hackers for their technology arm. Through the use of distributed ledger technology combined with the potential of auditing functions, there is the possibility to create a new region of value.
So how are the Big 4 embracing cryptocurrency? Both PwC and Deloitte have been the most outgoing in supporting the technology of Bitcoins.
Deloitte established its understanding of bitcoin through its formation of the offshoot company, Rubix. Rubix brings greater speed to the complex enterprise blockchain market across the globe. Indeed, the aim of blockchain technology in auditing is to allow for greater accuracy – to go back into the paper trails and see if any of the contracts or invoices were compromised, or to more easily go through the process of third party confirmations.
Meanwhile, PwC has released several reports about the unavoidable disruption that cryptocurrency will bring. Indeed, some of these reports highlight how such payment innovations will serve to dramatically limit the role of traditional financial institutions and clearing and settling payments. KPMG has made its first cyptocurrency accreditation to Elliptic, a firm that stores bitcoins for financial services clients. The accreditation, which signifies that the company operates at the same standard of a custodian bank, shows its clients it has the same controls as a traditional financial services provider. Whilst the Big 4 have the potential to disrupt the industry in a huge manner, they certainly have taken a long time to adopt the technology given its age.
What about financial services?
However, traditional financial services companies are not so fond of potential competitors adopting the technology. In Australia, the big banks have threatened bitcoin start-ups by withdrawing bank services. By the end of last year, 13 bitcoin company accounts had been closed by Commonwealth Bank Australia (‘CBA’) and Westpac Bank with no explanation as to the reason behind this.
Whilst on one side banks are looking to quell their future competition, they are also looking to embrace the technology all for themselves. CBA for example, is working with the world’s biggest banks to turn the digital currency technology into an international money transfer system. This technology has the potential to dramatically increase the settlement process and limit the liquidity cost without the need for traditional pre-settlement accounts. International payment services offer the most promising starting points, especially correspondent trade finance and banking. This is in contrast to current global payments methods which take days to settle, lacking in transparency and often fail on account of messaging errors.
There’s always got to be a challenge
The challenge with payments with large financial institutions is attaining a critical mass threshold. This requires adoption of blockchain technology across a number of organisations around the world and standardised rules around methods of using it. Another challenge is the potential for central banks to create their own national digital currency. This could mean the end of the banks privileged status with customers, where competition for funding and lending products increases immensely. Automated clearing houses and credit card facilities would also become obsolete.
Indeed, a possible reason behind the closure of bitcoin bank accounts may have to do with the lack of legal and regulatory standards for digital currencies, including the ability to self-regulate. Looking back to regulation, companies are still required to fill in a ton of paperwork to fulfil requirements. Furthermore, the existing market structure gives existing players the incentive to preserve the status quo. An estimated $300 trillion in transactions move through global correspondent banking networks yearly, delivering $150 billion to $200 billion in bank revenues. The potential is for professional firms to streamline the auditing process and for financial firms to offer digital solutions to customer will eventually come, but only with the aid of a more modern regulatory system and a market which is willing to embrace new risk.
The contributor for this article is Mark Jeyaraj, currently studying Finance and Economics at the University of Sydney and interning at Coinhako via QLC.io. He is intrigued by several fintech and technology solutions for social issues.