One of the biggest sticking points for major banks is the huge fees they charge clients for cross-border payments and forex trades. Now, many of the world’s biggest banks are now starting to jump on the blockchain and distributed ledger technology (DLT) bandwagon to help cut costs. HSBC has been testing its new blockchain based forex trade settlement system, pushing in excess of $350 billion through it since February last year. Since tests began, HSBC has saved up to 25% of the fees associated with settling forex trades, meaning these savings can be passed on to customers.
Will HSBC Break the Mold?
Banks aren’t generally known for their generosity and virtually always push extra fees onto customers, but what will happen to these savings? Will customers feel a difference in their pockets thanks to the huge savings that its new blockchain forex settlement system is making? Our best guess is that these savings will help HSBC see record profits and develop new platforms just like FX Everywhere. While an extremely small portion of the savings might be passed on to customers, there is a good chance that you won’t notice the difference on your average forex trade.
A New Challenge for Ripple
Ripple has been working hard to try and perfect a cross-border payment system, and FX Everywhere could throw a spanner in the works. Rather than signing up to xRapid or xCurrent from Ripple, HSBC has decided to go at it alone and create its very own platform. This means HSBC is likely to never sign up to any of its products and services, throwing a major challenge for Ripple. Last week Mitsubishi UFJ announced its own blockchain project that is a direct competitor to Ripple. With both the fifth and seventh largest banks in the world both not showing any interest in Ripple’s platforms, it could soon be struggling to onboard new banks.
Banks and Traditional Payment Processors Heading to War
MasterCard and Visa both recently announced that they are increasing their fees for banks, meaning banks now face a tough choice of whether they should absorb the cost or pass it on to clients. If banks opt for the latter option, they could force more merchants to ditch traditional payment processors and start using cryptocurrencies. Adoption of crypto payments is up more than 700% in the past five years, and this new fee rate could help push that figure even higher. The future of the payment industry balances on a knife edge, waiting for banks to make their move and change the course of history.
HSBC’s new forex settlement system is a clear example of how blockchain technology can be beneficial to the world, even for companies who cryptocurrencies seek to replace. By embracing blockchain and DLT, banks can grow and remain competitive as we head into a new age where every cent charged as a fee will be scrutinized.