Retail banking could reap benefits from implementing blockchain technology, McKinsey says

Unlike governments and investment banks, retail banks have been cautious with adopting blockchain technology, McKinsey writes. However, if implemented, the technology could provide them with a number of benefits: cheaper cross-border payments, better know-your-customer solutions, and ID-fraud prevention, as well as the faster assessment of new and existing customers, the report states.

Processing of cross-border payments, which amount to $600 billion annually, is slow and expensive. While fees usually equal between 2 percent to 3 percent of transaction value, they may reach up to 10 percent. While certain fintech companies and SWIFT are working to make transaction fees lower, bitcoin could speed up remittances and make them cheaper.

“If counterparties were to exchange cryptocurrency assets (digital currencies that do not need a central regulating body) rather than fiat currencies, for example, payments could be made and settled in minutes via blockchain, rather than in days as with current systems,” the report reads.

According to McKinsey, the introduction of blockchain could help save up to approximately $4 billion a year on cross-border payments. Moreover, due to the transparency of blockchain transaction, solutions providing better anonymity for payment participants would be required. Another issue is that currently “real-time settlement is currently impossible due to lack of fungibility between crypto assets and fiat currencies,” the report reads.

Banks could also benefit from using digital fingerprint when onboarding a client or opening a new account, McKinsey writes. If a digital fingerprint were stored on a blockchain, it could be accessed by various banks for verification. 

Retail banks have been wary of blockchain due to scaling issues, the volatility of cryptocurrencies, and insufficient regulations, McKinsey writes.