McKinsey estimates that the global payments market is set to exceed $2 trillion by 2020. We have seen several challenger banks grow incredibly fast in the UK, with firms like Monzo and OakNorth. OakNorth has seen its income grow from £77 million to £177.6 million in just 12 months: a year-on-year growth of 268%, according to Innovative Finance.

More institutions are starting to offer digital versions of their existing assets (equities, bonds, property, mutual funds etc) not to raise capital, but to program-in compliance and regulatory controls, thus making their products and services more relevant to younger clients who are looking to buy and sell on mobile devices (not via broker deals and IFAs). However, to date, the choice of banks catering for organisations in the Digital Asset space is limited, but here are some banks involved in this growing market:  Arab bank (Switzerland), Silvergate, Simple and Ally (USA), Frick (Lichtenstein), Monaize,  Clearbank and DAG Global (UK)  and Bitwala (Germany).

In its recent report, Does Digital leadership in Banking matter?, Accenture found that in a study of 160 banks, 50% of banks were still not that ‘digitally engaged’:

•          the more digitally mature a bank is, the higher the market valuation is, these higher market valuations are justified by better operating economics, and the gap is widening.
•          the digital banks are more efficient, have lower costs as a % of revenue.
•          effective digitisation appears to be associated with a business model where the balance sheet is a crucial driver of income growth.

It would appear that, by going digital, banks can achieve better rating and stock market valuations, and have a range of products and services which are going to be more relevant for our increasingly digital economy.

However, it has not stopped Deutsche Bank from joining the JPMorgan project, which uses Blockchain technology - this being recently reported by the FT. Deutsche bank will join 320 banks and is by far the largest to sign up to the Interbank Information Network (IIN). The INN aims to cut the cost and reduce the time it takes to carry out cross-border payments, which is attractive for Deutsche bank as it processes more euro-denominated payments than any bank worldwide.

According to JP Morgan Payments Head, the IIN provides solutions that would previously have taken up to “16 days” to resolve just “hours”. Ole Matthiessen, at Deutsche’s cash management division, said “The IIN would allow his bank to offer better services to their clients, and would lower the cost of processing difficult payments. Our competitors are not just the other banks, it’s also new players in the market, we need to become efficient enough to provide seamless real-time and digital process”.

This is yet more evidence of how institutions are adopting Blockchain technology as they realise the efficiency and cost-saving that can be generated in a highly secure environment, despite the naysayers who always present when changes are prevalent.

One of the key factors that institutions and private clients constantly question is ‘trust’. For Blockchain technology and, indeed, Digital currencies, users are going to have to trust before they engage or, at least, trust those organisations which are involved. The basic concept of moving from a system where there was a third party that one could go to in the event of a problem to a decentralised system, one has to, in effect, trust the digital code. It is something that users and regulators will need to frankly ‘get their heads around’. This very topic was recently discussed at an American Chamber of Commerce meeting by the Singapore Minister for Communications and Information, like Singapore, according to The Strait Times, is becoming  “a Smart Nation and Asian digital capital”. Banks are grappling with the challenge of how to update their legacy systems by exploring how technologies like Blockchain can help, which is why the Fin Tech and Reg tech-sectors are so active. However, trust remains a vital part of any innovation, especially in a highly regulated sector such as financial services.