We are heading towards a free transaction world. If the banks do not do anything about this issue, they have a very high chance of failing or even going bankrupt. The world is changing and there are several crypto blockchain based transaction services which today are already offering transaction fees in cents, let alone what banks charge, which are about 400 times more in most countries.
Swift, chaps, banks, etc. really need to get their act together or face the continued new pressure from blockchain companies. Through blockchain, many challenger banks already do in an hour the same transactions that banks do in days, with fees that are a few cents. Many already offer transfers between crypto wallets for free or again paying fees that are a few cents. This pressure from a lot of blockchain based technologies and a majority of the crypto wallets is creating more competition to drive the price to virtually free transaction costs.
As a comparison, think of of a typical transaction-based service that the mobile operators started within the 90s called SMS. That used to cost in the early days at least 10 pounds in the UK, for example. Majority of the mobile providers like Vodafone, Orange, etc. used to charge that very comfortably whilst their infrastructure made a huge profit for those operators. After Yahoo messenger, the world changed again. The mobile operators reduced the costs just to keep their clients going away and using alternative transaction messaging services. They soon made all SMS costs to 0, followed by quotas of free SMS per month, and finally unlimited SMS towards the end. After some time, there were other Internet-based services like Skype, Viber, and WhatsApp, which allowed calls and messaging over the internet for free. VoIP as we know it, which then made the mobile operators even allow for late SMS and calls to their home countries part of their packaged service whilst roaming in the EU for example. Why couldn’t operators have developed their own versions of Skype or WhatsApp?
This same analogy can be applied to the banks and their Swift or chaps or BACS transaction services. The ironic part is that banks and financial institutions are charging approximately £20 per transaction, irrespective of its value. Hence why other transfer organisations like MoneyGram and Western Union arrived to help people transfer funds where bank accounts were generally not held by the vast majority of citizens in the developing countries. Currently, this equates to over 3 billion people worldwide. What the cryptocurrency wallets are doing by charging transaction fees of about two to three pence is allowing not only the developed countries using this option to make payments at a fraction of the costs, but also the developing countries, where people do not have bank accounts.
In the very near future, banks will charge virtually nothing for doing transfers, or their slice of the cake will be eaten by the competitors. People will become their own banks, which is exactly the vision of all the crypto wallets. Anyone can be their own bank by sending and receiving funds for virtually peanuts or even free.
This is one of the main reasons why all the banks and financial institutions are not totally behind the current blockchain and cryptocurrency movement. They all are under threat of either losing their jobs or closing their big headquarters transactional sites and branches on a daily basis. Banks lose billions in transactional related frauds and hacking, which rarely get reported. Guess who pays for such losses? Yes, the client, from all the interests and transnational related fees that the banks make on leaving their money inside the bank. Even worse is when the bank makes bad decisions in their greed and creates bad debts, as we recall during the credit crunch crash. The government bails them out for such criminal behaviour and again guess who pays? Yes, the taxpayers.
If you can’t wait to see banks with transaction fees in cents or free in the near future, probably you won’t need to wait too much. Otherwise, the demise of such greedy institutions and income protecting organisations will be inevitable.
Author: Mru Patel, Partner and COO of Flash Group, CEO of Sapian Capital