Having explained why central banks are so nervous about cryptocurrencies, it seems the rest of the banking sector is finally admitting the real driver behind their disdain for digital currencies - they are competition and an existential threat.
As CoinTelegraph's Molly Jane Zuckerman reports, J.P. Morgan Chase has added a segment on cryptocurrencies to the “Risk Factor” section of their 2017 annual report to the US Securities and Exchange Commission (SEC), filed yesterday, Feb. 27.
The annual report mentions cryptocurrencies under the “Competition” subsection when describing how new competitors have emerged that threaten J.P. Morgan’s operations:
“Both financial institutions and their non-banking competitors face the risk that payment processing and other services could be disrupted by technologies, such as cryptocurrencies, that require no intermediation.”
The report notes that these new technologies, evidently including Blockchain, although they don’t mention it by name, “could require JPMorgan Chase to spend more to modify or adapt its products to attract and retain clients and customers or to match products and services offered by its competitors, including technology companies.”
This competition could potentially “put downward pressure on prices and fees for JPMorgan Chase’s products and services or may cause JPMorgan Chase to lose market share.”
J.P. Morgan Chase CEO Jamie Dimon had made waves back in September 2017, when he called Bitcoin (BTC) a “fraud” and threatened to fire any employee that traded BTC on company accounts. Since then, Dimon has backtracked slightly, telling a Cointelegraph reporter at the Davos World Economic Forum that he is not a “skeptic” on cryptocurrencies.
In the beginning of February, an alleged internal report from J.P. Morgan Chase referred to cryptocurrencies as “innovative” and “unlikely to disappear” , also noting cryptocurrency’s potential to be successfully applied to payment system areas that are traditionally problematic or slow, such as cross-border payments.
JPMorgan is not alone, as TruthInMedia.com'sBrendan Weber reports, in Bank of America’s new annual report filed with the U.S. Securities and Exchange Commission (SEC), the corporation largely reflected internally about a number of economic, geopolitical, and operational risks faced.
One of those stated risks is surrounding the increased adaptation of cryptocurrencies, which could have negative effects on the corporation’s earning potential.
In addition, technological advances and the growth of e-commerce have made it easier for non-depository institutions to offer products and services that traditionally were banking products, and for financial institutions to compete with technology companies in providing electronic and internet-based financial solutions including electronic securities trading, marketplace lending and payment processing. Further, clients may choose to conduct business with other market participants who engage in business or offer products in areas we deem speculative or risky, such as cryptocurrencies. Increased competition may negatively affect our earnings by creating pressure to lower prices or credit standards on our products and services requiring additional investment to improve the quality and delivery of our technology and/or reducing our market share, or affecting the willingness of our clients to do business with us.
Increased adaptation of cryptocurrencies also had Bank of America admitting that it may need to make “substantial expenditures” to compete with these rising technologies:
In addition, the widespread adoption of new technologies, including internet services, cryptocurrencies and payment systems, could require substantial expenditures to modify or adapt our existing products and services as we grow and develop our internet banking and mobile banking channel strategies in addition to remote connectivity solutions.
Bank of America might have already taken action to help counter these technologies by banning cryptocurrency transactions on their credit cards.
Additionally, the document stated concerns besides those directly affecting earning potential; they noted that emerging cryptocurrencies could impact Bank of America’s compliance with anti-money laundering regulations:
In addition to non-U.S. legislation, our international operations are also subject to U.S. legal requirements. For example, our international operations are subject to U.S. laws on foreign corrupt practices, the Office of Foreign Assets Control, know-your-customer requirements and anti-money laundering regulations. Emerging technologies, such as cryptocurrencies, could limit our ability to track the movement of funds. Our ability to comply with these laws is dependent on our ability to improve detection and reporting capabilities and reduce variation in control processes and oversight accountability.
Even though cryptocurrencies were a small mention within the entire report, its brief discussion indicated that the company is both aware of and reacting to the further potential impacts of cryptocurrency.