The biggest structural change that the banking industry has ever undergone will take place in this decade. Which German banks have understood how the crypto-economy works, which specific misconceptions will lead some financial institutions into existential hardship and how banks manage to pay their customers interest again.
If you look at the banking industry, the positions of the individual institutes could not be more contradicting. While some banks condemn the entire crypto-economy, others find blockchain good, but Bitcoin stupid, there is still the third group, which not only approves of the blockchain as a processing structure, but also the digital assets based on it. The latter group in particular can be found in the Anglo-Saxon and Asian regions – and less so in Europe.
Preach water, drink wine
It is particularly exciting when bank executives like Jamie Dimon from JP Morgan express themselves critical of Bitcoin, but invest significantly in crypto start-ups themselves or already offer or are currently developing token services such as custody or brokerage. Just last week, the two American investment banks Goldman Sachs and JP Morgan announced that they would be offering Bitcoin derivatives to their customers. Goldman Sachs has also invested in the crypto start-up Coinmetrics, while Citibank said it was working on a trading and custody service for cryptocurrencies. Such reports can be found practically on a daily basis, although it is often the same institutes that make a name for themselves.
German banks prefer to send their customers to future competition
If you look at the best-known German banks, ergo Deutsche Bank and Commerzbank, there is no commercial service related to crypto currencies with all the given blockchain empathy. The situation is no different for savings banks and Volksbanks. When customers of these banks receive messages about cryptocurrencies, they tend to be warning letters against Bitcoin or as on the blog of the Sparkasse Förde informationhow to invest in digital assets from other providers.
The latter is a very sympathetic trait of the small savings bank. On the other hand, it also shows that banks do not see crypto companies as competitors. Financial institutions ignore that today’s crypto companies can be tomorrow’s banking killers. Many German banks remind you of booksellers who saw no competition from Amazon ten years ago or hoteliers who ridiculed Airbnb at the time.
What the platform economy has done with many service industries in the last decade is about to happen in this decade with blockchain technology and the financial sector. The banks that understand this structural change in good time can gain more than they lose. Ultimately, the current market shares will be redistributed significantly as a result of new business models.
The inconspicuous innovators
While most Germans have an account with one of the above-mentioned banks, there are other banks in the Federal Republic that are less public. Your range of services is aimed more at very wealthy people or institutional customers. In contrast to some listed banks or banks with a public mandate, some of these actors have recognized the urgency to transform their business and explicitly include services for cryptocurrencies.
These include the von der Heydt, MM Warburg, Donner & Reuschel and Hauck and Aufhäuser banks. They already offer services such as token custody or securities for crypto currencies. There are also special institutes such as Bankhaus Scheich (securities trading) and WEG Bank (housing industry) with their TEN31 brand, which include digital assets in their business model or even build interfaces to DeFi applications or blockchain protocols.
DeFi as a catalyst for bank selection
One bank that also seems to have understood that the DeFi sector will disrupt the banking industry is the Dutch ING Bank. The crypto-friendly money house explains in his paper “Lessons Learned from Decentralized Finance”, why the combination of centrally provided services (classic banking business) can benefit enormously from interfaces to decentralized offers (blockchain protocols). For a case study, the bank has already worked with the DeFi credit protocol Aave.
This is exactly where the massive division among the banks becomes apparent. While individual institutes are hopelessly overwhelmed by the crypto-economy, other banks understand how to respond to structural change. Because blockchain or not: banks will – necessarily – still exist in 10, 20 or 30 years. However, their structure will very likely change massively and become leaner. Traditional banks can also count among the winners of the crypto economy.
The big mistake
As the example of ING and Aave shows, it is about much more than speculative investments with cryptocurrencies. It has long been the lending business that has been opened up by blockchain protocols and their tokens. The Sparkasse director, who confidently declares at this point that his institute can easily do without the business of investing in Bitcoin, ignores this fact. If decentralized credit services should establish themselves in the next few years, then the credit institutions that do not know how to quickly implement a hybrid approach will also have a problem.
Banks can already offer a decentralized deposit business. Banks that are open to so-called open banking or API banking can already offer attractive interest rate transactions with Bitcoin or DeFi components. Here, too, there are specific examples such as Bitwala from Berlin.
Like overnight money, only with interest
While banks have abolished positive interest rates on deposits and instead introduced negative interest rates, the income account from the Berlin crypto bank Bitwala can be cited as a counterexample for “it just works”. For this purpose, the Neo-Bank cooperates with the Celsius credit protocol. Bitcoin or Ether can be deposited by bank customers so that they receive interest on their deposits via Celsius. Of course, the risk is higher than with a classic overnight or fixed deposit account. Nevertheless, the example shows how a bank can create alternative interest rates for its customers, even if they have no knowledge of the crypto-economy.
While many a bank board member is drinking tea and hoping for rising interest margins, a new generation of banks is emerging that can very well implement more digitization, despite regulatory hurdles. The further nationalization of some German banks – the German state has still held over 15 percent of Commerzbank since the bank bailout – will be difficult to circumvent in the course of this decade.
This article was published by BTC-ECHO on May 14th. It has now been checked again and updated.