'Big four' auditing firm KPMG has published a report identifying bitcoin as both a threat and an opportunity to the banking sector.
The report, titled The Changing World of Money, outlines the factors threatening established retail banks, whilst discussing the potential of cryptocurrencies as viable payment solutions.
"New challenger organisations, from banks to peer-to-peer lenders to PayPal and bitcoin are smaller, more agile and quicker to respond to changing trends."
The document goes on to explain that these emerging forms of payments have "greater responsiveness to customer needs", attracting "affluent, intelligent and profitable customers".
The issue, KPMG says, is that banks are unable to respond to their customer's needs quickly. "Their legacy systems, data management, increased costs of regulatory controls and the increasing focus on remediation" hamper their response speed, it explains.
By considering the three fundamentals of retail banking – lending, deposits and payments – and identifying some of the threats, challenges and opportunities that lie ahead in each case, the report makes a series of tough points for bank leaders regarding the sort of organisations that will thrive in the short and long run.
The biggest issue raised, arguably, is whether the growth of electronic payments, cryptocurrencies and local trading exchanges will eventually eradicate traditional money.
'Giant ledger in the cloud'
Having recognised the potential of cryptocurrencies, the paper encourages economists, policymakers and businesses to start thinking differently about money, whilst highlighting the shortcomings of bitcoin.
"[Cryptocurrencies] need to operate as a medium of exchange, a store of value and a unit of account", the report states before adding that:
"As a medium of exchange bitcoin is constrained by the fact that so few outlets accept it in payment. It is not yet a reliable store of value because its price against national currencies can fluctuate as much as 20% a day."
Describing bitcoin as a "giant public ledger in the cloud," Jon Matonis, former founding director at the Bitcoin Foundation, is cited claiming that there is no reason why the major banks could not tap into the increasing demand for peer-to-peer cryptocurrency.
Banks could look into operating bitcoin retail transactions and setting up the required systems of escrow, he is quoted as saying.
Payments in a heartbeat
The fact that the future of payment is likely to include all kinds of clever new technologies, many of which are still in the very early stages of development, does not come as news to many.
As an example, the KPMG report describes a recent offering from Canadian firm Bionym, which has developed what it describes as 'the world's first biometrically authenticated wearable payment solution'.
That solution, the Nymi, is a wristband that reads the wearer's unique individual cardiac rhythm, which are unique to each individual. Once authenticated, the device can largely be used with existing contactless payment systems.
Bank speculates on cryptocurrencies
The Bank of England's Quarterly Bulletin 2014 report, titled The Economics of Digital Currencies, also speculated about the emergence of a banking system based on a digital currency.
The report said:
"An important question that would then emerge is whether banks could be constrained in their creation of broad money without regulatory oversight or central bank involvement in the management of the underlying base currency."