Deloitte’s Center for Financial Services has released a report forecasting transformation of the banking industry over the coming decade due to disruptive technology.
The Banking Industry Outlookreport estimates that blockchain-based payment systems could equal the volume of the United States' Automated Clearing House (ACH) financial transactions network by 2020.
It identifies artificial intelligence and machine learning, blockchain technology, collaborative ecosystems, digital currencies and demographics as disruptive forces.
The report cites the most attractive characteristics for payment industry disruptors as the $26 trillion transaction value, the multitude of inefficiencies and convenience-centric customers.
“[T]he innovation that is possibly the most disruptive of all is blockchain technology” ~ Deloitte Center for Financial Services, 2016
The center mentions that it has seen a growth of infrastructure as a service for banks using third-party providers. It expects margins to be reduced and for reliance on networks of partners to increase over the coming decade, saying banks should adopt different contracting and partnering methods to mitigate operational risk.
“Reliance on third parties for noncore infrastructure and talent will be a common phenomenon. Banks will become increasingly connected via a complex network or web of vendors and third parties.” ~ Deloitte Center for Financial Services, 2016
It sees inability to move on from legacy systems as an impediment to reducing transaction speed and cost, using the example of U.S. retailers’ slow migration to EVM chip card technology.
“Private, permissioned chains among a finite set of counterparties and clients could become common, with payment processors and the large banks owning and operating possibly multiple private chains to facilitate a range of payments. An uber-private chain (a blockchain-of-blockchains) much like The Automated Clearing House (ACH) network is a likely scenario, but one perhaps further down the road, given the complexity of establishing such an infrastructure.” ~ Deloitte Center for Financial Services, 2016
Despite the threat posed to traditional payment models, the center believes banks will retain dominance in corporate transactions due to “complexity and high-entry barriers.”
It sees loss of financial institutions’ control over consumer payments as a branding challenge, but that having fewer intermediaries, including merchant to issuer, will reduce delays and risks.
It still sees banks as drivers of innovation in payments, due to the centrality of credit in payments.
The center predicts state-sponsored digital currencies becoming a reality within five years, and expects that digital currencies will “become interoperable with other currencies.”
Specific recommendations were for companies to “invest strategically in innovation by partnering, hiring, crowdsourcing, and piloting” to explore blockchain technology.
It encourages wide-ranging engagement within the payments ecosystem, and with regulators to shape industrywide standards.
As the report predicts reduced control over the user experience, it encourages companies to make use of customer data to tailor customer-centric payment solutions.
Deloitte’s Global Blockchain Effort
The firm is providing blockchain consulting services across its global network. Its U.K. subsidiary Deloitte LLP has also released a report identifying banking, insurance, the public sector and media as four key areas for application of blockchain technology.
It identified smart contracts in the Ethereum network as having transformational potential for business processes.
It laid out the key challenges to the blockchain industry, including lack of understanding of what blockchain is, particularly outside of the banking sector. Other challenges were organizational culture, regulation and governance, security and privacy and inefficiencies of development of multiple blockchains to different standards.