The Institute of International Finance held its annual membership meeting in Washington this past weekend, and banking elite from all over the world convened to discuss many topics. The newest topic of discussion at this year’s meeting, one that had eluded them in previous years, was a threat to traditional banking embodied by Bitcoin and other crypto-currencies. What should banking “do” about a Bitcoin threat? What can they do about it?
How to handle the Bitcoin threat
Jamie Dimon is the CEO of JP Morgan Chase. JPMorgan Chase is the leading U.S. bank in domestic assets under management, market capitalization value, and traded stock value. JPMorgan Chase is the No. 1 credit card provider in the U.S.. Here is what he had to say about Bitcoin and its impact on the banking industry.
“(Bitcoin developers) Are going to try to eat our lunch, and that’s fine……That’s called competition, and we’ll be competing.”
Dimon has made previous comments about Bitcoin, calling it “a terrible store of value”.yet last year J.P. Morgan Chase has made a patent application for their own anonymous digital payment system. Does JP Morgan Chase have another Apple Pay coming, which is a rehash of the current technologies that support the current economic leadership and status quo? Banking does not have a great track record in innovation, except in the world of consumer fee assessment. This is one of the main reasons to use a new technology like Bitcoin, which extolls virtually no fees on the user. Traditional banking has not found a way to extend credit or financial trade mechanisms to the “unbanked” over the last century. The numbers of which have grown to at least 2.5 Billion worldwide, according to the most recent numbers from The World Bank.
Regulations, like the infamous “BitLicense” being proposed in Ne York State by Ben Lawsky, may be the current financial system’s ace in the hole. If you can’t beat Bitcoin, make it illegal, or useless, through regulation. The music industry, media distribution, and retail business have seen new technologies force them to adapt or die. Anshu Jain, co-CEO of Deutsche Bank, sees regulation as a way banking can avoid innovation or adaptation.
“Why has disruption….not happened in finance? There’s a very straightforward reason: Regulation. If (Bitcoin) wants to take retail deposits, they will have to change their culture.”
Considering the facts that Bitcoin was not invented to “take retail deposits”, or please regulators of centralized banking systems, of which Bitcoin is not a member. This only shows how little the banking industry leadership still understands about Bitcoin, after almost six years of existence. The Internet had its own trials and tribulations attempted by regulators, at the behest of not banking interests, but the telecommunications industry. The Internet won that battle, and telecom either adapted or died. What did happen is the leaders joined forces with The Internet, and became Internet providers. The enemy saw the light and became an ally. Can banking learn from the experience of companies like AT&T on how to capitalize on true innovations like The Internet?
From the quotes and tenor of this meeting in Washington, elite banking execs still have little understanding of what digital currency is designed to do, or why it does it in the first place. Bitcoin can replace the need for centralized banking by allowing users to trade currency much in the way people trade information online. All with similar low costs, higher security than banks like JP Morgan Chase have shown they can provide for their financial information, increased velocity, and ability to allow all people worldwide to use the system, and not go completely “unbanked”, regardless of location or income.
The chances of super banks like Deutsche and JP Morgan Chase joining forces with Bitcoin to improve financial transmittance are slim and none, at least in the near future. What is much more likely is that smaller, more nimble banks will stop following the herd, and break off to gain a tactical market advantage. They can position themselves as cutting edge by offering a new Bitcoin integration application. Online companies like Overstock.com started accepting Bitcoin, and now larger companies like Dish Network, Dell Computers and PayPal are heading Bitcoin’s way. More erosion on a beach than an avalanche of acceptance.
If AT&T can be converted from the world’s largest long distance carrier (, Skype now handles 3/4 of all international calls) into a leading Internet provider, any bank can become a Bitcoin charter member as well. Blockbuster video is a fair example of banking versus online currency. People used to drive to the store to get a video in order to get a movie rental. Netflix turned the industry purely online and removed the need for a brick and mortar model completely. Less than a decade later, Blockbuster Video filed for bankruptcy. The chances of that happening to the established banking cartel are virtually nil.
Alas, this weekend’s discussions proves that the banking industry realizes that the possibility of history repeating itself is there, no matter how remote. That these discussions are even occurring is in Washington is an admission of Bitcoin’s power both now, and in the future.
Score one for Bitcoin. The Bitcoin threat is duly noted in the minutes of this meeting.
Images from Institute of International Finance, Wikimedia Commons and Shutterstock.Follow us on Telegram or subscribe to our newsletter here.
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