Bain: Distributed Ledger Tech Will Make Winners and Losers in Banking


Bain argues that distributed ledgers will decide the winners and losers in banking. Image: Shutterstock

Global management consulting firm Bain & Company recently published a report on the profound implications of bank adoption of distributed ledger technology (DLT).

Bain interviewed senior bankers, technologists, and payments executives to determine whether “changes to the complex pipelines that make payments possible” are likely to succeed, and whether banks are adequately prepared for the dramatic shifts in the financial system that will follow them.

The bottom line: adoption and implications of DLT “will create winners and losers within the banking industry.”

Bain: distributed ledger tech “will create winners and losers within the banking industry.” Tweet This

Beginning with an explanation of how DLT works, Bain points out both the strengths of the system and the particular relevance to payments.

  • DLT eliminates the current process of duplicative reconciliation, which is costly and time-consuming.
  • With DLT, trust comes from the process itself, rather than from the status of any one participant.
  • Strong cryptography ensures certified participants, agreement between ledgers, and immutability of transactions.
  • DLT can identify participants and automatically execute transactions, without batching.

Because of these benefits, Bain theorizes that DLT will first gain traction in specific systems for cross-border payments, followed by broader adoption for other types of payments triggered by bank use of digital bridge assets, such as XRP.

Using Ripple as an example, Bain illustrates how the first phase of DLT adoption is already underway:

“Perhaps the best-known company trying to solve this problem, the San Francisco–based startup Ripple, has built a functioning system for international payments around a bespoke protocol and currency. […] For international payments, Santander recently announced one of the first retail-oriented Ripple-based payments applications for consumers.”

Bain suggests that banks that are ready to move from experimentation into action as Santander and others have done should ask themselves if they would rather be innovators or fast followers.

If the adoption of DLT will create winners and losers, then both innovators and fast followers have a chance to win.

Read the full report here.