Moody’s Sees Blockchain Slashing Costs, Time of Cross-border Bank Payments

The global ratings agency considers Swiss banks as most exposed to blockchain disruption

by Marin Marinov
16 April • 2.5 min
In News

Blockchain technology, which lies behind cryptocurrencies, has the potential to meaningfully lower the costs and time involved in cross-border banking transactions, Moody’s said on Monday. In a press release, presenting its new report dubbed "Banking -- Global, Blockchain efficiencies could streamline transactions but reduce banks' fee income", one of the three major global credit rating agencies said that blockchain technology has mixed credit implications for the world banking systems, with the Swiss banks most exposed to the disruption the technology is set to cause.

The paper analyzes the impact of distributed ledger technology (DLT) by focusing on two main topics - cross-border transactions and fee and commission income. The agency underlines the positive impact of blockchain on international transactions because of its ability to speed them up and to lower the cost.

The most exposed banks

However, Moody’s points out that cutting the prices also has a negative side, especially for banks that heavily rely on international transactions and commissions for their income:

“Banks could benefit significantly from the development and implementation of blockchain technologies in terms of enhanced efficiency, cost savings and risk reduction. But the adoption of these technologies will also limit processing fees, commissions and gains on foreign exchange transactions, which will pressure revenue,” Colin Ellis, Managing Director at Credit Strategy Department and co-author of the report said in the press release.

moodys

Swiss banks are the most exposed to reduction of revenues because 50% of their income comes from commissions and fees. Italian, Canadian, and Israeli banks follow with a share of 35%. Less vulnerable are banks in Asia Pacific and those in the smaller European countries. Banks in Cyprus, Greece, South Korea, Brazil and Argentine have around 15% share from fees in their financial results.

However, Swiss bank situation is more complicated because the country is in Moody`s top 3 of banks that manage the most cross-border payments compared to GDP. Britain is first, followed by Belgium:

“Banking systems with significant cross-border transactions -- including those in the United Kingdom, Belgium and Switzerland - may see the most disruption from the technology that underpins cryptocurrencies such as Bitcoin,” Moody’s concludes.

Swiss federal authorities are also concerned about the impact of blockchain and cryptocurrency. In January, the finance ministry set up a working group for reviewing of laws and proposing of new legislation for blockchain technology and initial coin offerings (ICO), if needed.

Moody’s report comes a few days after major developments in blockchain implementation in bank activities. Last week, Spanish banking group Santander launched an international DLT-based payment service and the Japanese banking giant SBI joined the R3 Corda consortium for development of blockchain-based transactions.