Canadian banks are among the most exposed to the reduction in fee and commission revenues that could result from the adoption of blockchain technology in the financial sector, says Moody’s Investors Service in a new report.
Blockchain technology “has the potential to significantly reduce” the time and cost involved in cross-border banking transactions, says the report, which would increase banks’ efficiency but also pressure their fees and commissions.
According to its report, Swiss banks would be most exposed to reductions in fees and commissions, with about half of their revenues coming from these sources. Canadian, Italian, and Israeli banks are the next most exposed banks, with about 35% of revenues coming from fees and commissions.
“Blockchain has the potential to substantially change how a wide range of financial services are executed. Banks could benefit significantly from the development and implementation of blockchain technologies in terms of enhanced efficiency, cost savings and risk reduction. But the adoption of these technologies will also limit processing fees, commissions and gains on foreign exchange transactions, which will pressure revenue,” says Colin Ellis, managing director credit strategy at Moody’s, in a statement.
The report says that banking systems with significant cross-border transaction activity — including the United Kingdom, Belgium and Switzerland — may see the most disruption from blockchain technology.
“While making cross-border transactions faster and less expensive would be credit positive for banks, these efficiencies could also compress their fees and commissions, a credit negative,” the report says.