Pierluigi Martino - Blockchain and Banking: How Technological Innovations Are Shaping the Banking Industry

Advances in telecommunications and information technology have had a significant impact on the banking industry over the past few years. The rise of the financial technology (fintech) sector has also played an important role, with new technologies like blockchain having the potential to change the whole banking industry in faster and more disruptive ways than ever before. This chapter outlines the context of this study, presents the books structure and objective and highlights the main themes of all the other chapters.

The banking industry has undergone considerable changes over the past few decades, especially because of the boom in technology that has resulted from advances in telecommunications and information technology (IT). These advances have transformed banking products, services and processes (Berger ). Faster computing and the widespread adoption of the Internet have produced a more efficient payment system with new payment tools and banking services (e.g. automated teller machines (ATMs), credit cards, electronic payments , Internet banking, etc.), while advances in IT (both hardware and software) have led to more efficient and sophisticated ways for banks to leverage vast quantities of consumer and company data.

Nevertheless, as (ECB ).

According to the Financial Stability Boards (FSB) () also underscores the potential for these new technological innovations and points out that they may create many benefits for consumers and organisations, including access to credit, improved comparability of products, access to a wider product range, availability of up-to-date information, tailored product offerings, reduced costs and consumer convenience. Thus, these innovations may contribute to a decline in costs, a reduction in information asymmetry and an increase in efficiency and competition and provide broader access to financial services by developing new ways to obtain funds. At the same time, however, these technologies can also pose new risks to the financial system , which policymakers , regulators and supervisors should consider to ensure the financial stability , safety and soundness of financial institutions , as well as consumer and investor protection.

Given the potential of fintech technologies and products, the industry has evolved significantly over the past few years and experienced a massive year of investment in 2018, with total global investment (across venture capital (VC), private equity (PE) and mergers and acquisitions (M&A)), more than doubling from $54.4 billion in 2017 to $141.0 billion in 2018 (KPMG ) on global investment trends in the fintech sector. The positive trend also continued in 2019, with global investment hitting $135.7 billion, a slight drop from the 2018 results, but still more than double any year before 2018, thereby highlighting the strength of the global fintech market.

An innovation that is central to the current fintech space is blockchain technology (Guo and Liang ).

Blockchain has widely been acknowledged as a disruptive technology and a key source of future financial market innovation (Lewis et al. ).

Although the initial scepticism about blockchains original idea, i.e. blockchain used to launch cryptocurrencies , several financial institutions (including banks , insurers, etc.) around the world have focused on the DLT behind blockchain (i.e. blockchain without cryptocurrencies ) over the past few years to examine how it may affect most of their business. Particularly for the banking industry , the reason for the growing interest in blockchain technology is its potential to create new opportunities for banks and because it poses new threats to their business (Buitenhek ).

Thus, existing literature suggests that blockchain may present new challenges and not only create opportunities for but also pose threats to banks . This is pushing banks to rethink their operations , business models and strategies. However, relevant literature is in still its infancy, and we have no clear understanding of blockchain technologys potential implications for banks (Zhao et al. ), this book aims to shed more light on the implications of blockchain technology for banks , exploring the potential impact on traditional banking business models . To this end, the book is structured as follows.

Chapter provides an overview of blockchain technology and highlights its key features, benefits and disadvantages . It also examines the different types of blockchain (i.e. private vs public blockchains ), as well as their evolution (i.e. blockchain 1.0 vs blockchain 2.0 onwards). Finally, the chapter discusses the topic of cryptocurrencies and smart contracts , which are the two main applications of blockchain technology.

Chapter which used qualitative-based interviews with three professional bankers from different European banks that are dealing with the challenges of blockchain , and discusses the advantages and risks that blockchain technology can hold for banks. It also identifies the main banking areas that can be affected by adopting this technology.