The increasing competition in the finance sector has pressured banks, financial institutions and existing payment networks to re-consider the threat of emerging innovative financial technologies such as Bitcoin and its underlying technology, the blockchain technology.
A growing number of multi-billion dollar banking groups and multinational tech corporations have begun to deploy their own blockchain labs, Bitcoin-focused groups of researchers, and even digital currency dedicated venture capital funds to maintain close relationships with first-tier blockchain startups.
As a result of the rising interest towards the distributed ledger technology in the conventional finance sector, total investments in 2015 in the Bitcoin space totaled nearly US$1 billion, surpassing the venture capital growth of most industries globally.
Feeling the pressure and understanding the threat of rapidly evolving decentralized currencies, banks have begun to disburse significant portions of their budget into IT management and security improvements, to gradually enclose the technological gap between next-generation technologies like Bitcoin and existing financial systems.
“This is up significantly on 2015, when just over half (52%) increased their IT expenditure on payment technology. Most tellingly the proportion of banks reporting significant increases in payments’ spending (over 6%) has leaped from near 10% to almost 30%. Ovum says that such a major shift is representative of the transformative levels of change happening in the payments market,” reported Ovum, London-based independent analyst and consultancy firm specializing in IT.
Amid growing security concerns, banks and financial institutions have begun to prefer the blockchain technology over recently introduced financial networks like Apple Pay, which many so-called financial experts believed it would overtake Bitcoin in various ways.
Interestingly, Apple Pay failed to capitalize on one limitation of Bitcoin which experts considered Apple to have an edge over; consumer interest. Despite the established financial infrastructure and funds necessary to secure partnerships with leading businesses in the US, Apple Pay was unsuccessful in alluring retail giants such as BestBuy and Ebay, which partnered with JPMorgan Chase’ payment network, Chasepay.
Falling behind the Bitcoin blockchain technology in consumer adoption, awareness, financial infrastructure, and security protocols, the world’s leading banks including UBS, Citibank, JPMorgan Chase, Bank of America, and many others formed a consortium with the help of established research institutions to investigate the application of the blockchain technology in the traditional financial sector.
“Security is always a core issue for both vendors and enterprises alike and the market is set to see renewed levels of investment activity in 2016. This will be driven by the need to find new means of authentication while reducing risk and the burgeoning growth in tokenization technologies. Investment in the US in particular is likely to be high as the country continues its shift towards EMV,” said Gilles Ubaghs.
In the upcoming years, bitcoin experts predict the world’s leading banks and financial organizations to embrace the Bitcoin blockchain network, instead of deploying its own, due to security concerns and vulnerability. If the banks shift their interest towards the Bitcoin blockchain technology, it could cause the value of Bitcoin to surge, dramatically increasing the transaction and trading volumes of the independent currencies.