Stanford Graduate School of Business Professor Darrell Duffie believes that decentralized cryptocurrencies like Bitcoin still have a relatively low level of adoption. He mentioned that “The future is coming, and it will be very disruptive to legacy banks that don’t get with the program. New payment methods will trigger greater competition for deposits. If consumers have faster ways of paying their bills, and merchants can get faster access to their sales revenue without needing a bank, they won’t want to keep as much money in accounts that pay extremely low interest.”
Consumers and businesses currently store around $14 trillion in deposits with United States banks alone that pay out an extremely low rate of interest. Banks currently pay less than 0.1% interest on checking and savings accounts, and only a slightly higher rate on 1-year certificates of deposit. Meanwhile, the amount banks receive from routine overnight loans has climbed from 0.3% in 2015 to over 2% in 2019. This dependence on deposit accounts to process payments by the vast majority of the population ensures huge profits for banks. In addition, banks charge high fees from credit card vendors, a cost that is mostly then passed on to the consumer.
Different models for future central bank digital currencies could also develop in ways that would bypass commercial banks for at least part of the payment process. Professor Duffie argues that the current system is not sustainable and that technology, economics and public pressure will wrest control of the global payment system away from banks. Smartest banks will be on the front edge of this.