New research from financial services giant Credit Suisse seeks to analyze the impact of blockchain on 14 existing market participants and their stock performance.
Written in response to investor questions, companies examined include major exchanges (the Australian Securities Exchange and Nasdaq), incumbent business process facilitators (Computershare and Equiniti) as well as financial services providers (Experian and JPMorgan).
The 135-page report, released today, highlights four areas where the technology can potentially lead to disruption – payments, capital markets, financial services and media. Ultimately, however, the report concludes the stock performance of select firms in these categories will not be significantly impacted.
The report reads:
“Our broadest conclusion is that blockchain is less relevant in sectors where there has already been significant investment and innovation.”
Overall, the report is more bullish on blockchain than bitcoin, a statement that echoes similar findings from research efforts commissioned by incumbents.
The report also sketches out 13 barriers to bitcoin, questioning the digital currency’s ability to scale to Visa-level transactions and noting its current slow transaction processing times.
The authors argue, however, that blockchain tech more generally is better positioned for a broader impact.
“We find blockchain more easily optimizable to different objectives than bitcoin and think three key properties – disintermediation of trust, immutable record and smart contracts – endow the technology with real advantages to legacy systems,” it reads.
The biggest impact areas, the report said, would likely be financial services, exchanges and post-trade settlement.
Of all the public companies studied, Credit Suisse determined most faced no near-term threat from blockchain, and that the technology in fact offers long-term opportunities in four areas.
Though it acknowledges that it’s impossible to know where blockchain will ultimately be used, the report argues changes provoked by blockchain are inevitable.
Payments, an industry that includes merchant acquirers, card issuers and financial payments processors, is one big, well-established industry that bitcoin and blockchain could potentially transform, according to the report.
But Credit Suisse thinks that the industry’s big players don’t need worry about being uprooted by blockchain.
“We think it unlikely that bitcoin will gain traction as a mainstream payments network, or that blockchain will disintermediate the globally trusted brands of the card networks such as Visa and MasterCard,” the report reads, adding:
“On balance we view the existential threat to the industry as modest.”
The report argues that this is also true of payment processing firm Worldpay, adding that the fears of blockchain overtaking the company are exaggerated. Fiserv, it said, is also “well positioned to compete”.
For capital markets participants, Credit Suisse saw more opportunity than risk as well.
The report evaluated specifically how custodians, exchanges and registrars would be affected by blockchains, concluding they could offer a new approach to data management. The end result, the report posits, is that the way capital markets are constructed could change, but they would be more resilient and less costly.
Though the report argues the winners and losers will be difficult to predict, it said existing incumbents are “best positioned” to reap profits created by blockchain tech while suggesting some consolidation could occur.
As such, the report asserts exchanges such as ASX will see “little downside risk”, while the London Stock Exchange’s and Japan Exchange Group’s exposure was similarly low. Business process facilitators were also evaluated in this section, though the report called concerns about their business models “overplayed”.
On this topic, the report sought to describe how the use of a distributed ledger, or multiple distributed ledgers, could impact banking and financial services.
Ultimately, it described two market opportunities it believes are likely to occur. In one, a shared ledger cuts costs by processing securities trades and facilitating international payments. In the other, share ledgers result in more data on clients, boosting the ability of firms to sell to consumers.
The report argues that at least some adoption of blockchain by financial services is likely, based on its analysis of banks like Goldman Sachs Group, JPMorgan Chase, Experian and Santander, which have shown varying degrees of interest. But major impact is expected to take three to five years.
At the very least, according to the report, the rise of blockchain has motivated banks to take a closer look at their underlying IT structures.
“This means the future banking landscape and both the size and allocation of profits from banking may change substantially,” it reads.
Notably, it calls Goldman Sachs “among best positioned” to reap blockchain benefits, and draws similarly positive conclusions about the outlook for JPMorgan Chase, Experian and Santander.
The report also explores how blockchain could disintermediate non-financial companies, a hot topic especially since the rise of ethereum, the smart contract computing platform.
It focuses on media use cases, including music, TV, pay TV, digital video and publishing, arguing, the tech could come to reduce piracy.
As far as the music industry goes, this benefit would require “total adoption” of a blockchain-based platform, but the report argues that this sweeping change would require at least five years.
Alyssa Hertig co-authored this report.
Stock market report image via Shutterstock
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