Historic Financial Institutions Cash Cow
To run a successful business, an enterprise needs a mix of business units that take a diversity of risk profiles. Some being focused on growth, while others are less-risky and generate a more or less constant streams of positive cash-flow (e.g. the Cash Cow). Historically banks and other financial services have relied on fees to be the cornerstone of their cash cow. The introduction and continued adoption of digital assets will inevitably threaten those cash-flow streams. From maintenance fees to margin lending interest, digital assets are emerging that will bring upheaval in the entire industry. Quite recently we are now seeing the emergence of a USD “stable-coin” that is tied directly with a 1:1 peg with a USD on deposit in a financial institution. The transfer of that USD Coin (and therefore the equivalent transfer) to another person today costs $0.04 to complete a transfer. Whether it was $1.00 or $1mm, the transfer price is the same. In the banking sector that retail wire cost would be $20 (or 500x more expensive). Further, many financial institutions charge a considerable fee to convert between USD and other foreign currencies (e.g. Euros). Since the introduction of a USD Coin, it is inevitable than a Euro Coin is coming. Firms like TransferWise have already started to peck away at international transfer fees by providing a KYC gateway. In the coming years, a massive financial institution consolidation is inevitable as “huge barrier to enter / highly regulated’ firms are forced to compete in ways they never contemplated. The end result will be consumers win. All the while, every financials institution (major and especially minor) will be forced to evaluate how and where they will fit in the upcoming financial system. Groups like MakerDAO, which have created a lending structure and its own stable-coin (DAI), are currently using an interest lending rate that significantly lower than current financial institutional lending rates. This can occur primarily as the MakerDAO team is much smaller but using a system that is both decentralized and validated. It is a matter of time and volume that will bring sub-0.01% percentage changes between the DAI and USD Coin (and thereby the USD).
There was a day when I wanted to work at a financial institution in a major city, today I would not recommend it unless you are watching from the outside. Life within an institution will be chaotic and full of layoff rounds for the foreseeable future. The entire financial industry is about to take an order of magnitude gain in efficiency and be hollow-ed out at the same time.