Discuss about the Crypto Currency And Its Impact On The Banking Industry.
This report is based on crypto currency and its impact on the banking industry. Bit coin is a form of crypto currency which has recently gain popularity as it has solved the issue of making online transaction without involving financial intuitions. The advent of web 2.0 has increased the volume of transaction on the online platform and financial institutions have been acting a trusted party. The online medium transactions have high risk attached to it and trust is a factor which affects the transaction. However, crypto currency is a form of digital asset which can make the transactions more secure on the online platform. Therefore, the report will analyse the impact of Bit coin on ANZ bank and the banking industry in Australia.
The strategic environmental analysis will consist of analysing the macro environment of Bit coin. This will define the key forces that will drive the industry and the positive and negative effects of crypto currency on the banking industry.
The pestle analysis of Bit coin will consist of evaluating the political, economic, social, legal, environmental and technological environment.
Political
In respect to the political environment, it can be said that Bit coin cannot be controlled by any government so there is no need of placing trust in hierarchy of the government. Trust among the developed nations in respect to governments handling money is a problem as people tend to trust more the value created by similar kind of people (Ato.gov.au 2018). The open source and minimal amount of trust on the financial institutions has increased the value of the products among the online users. There are various countries that have happily accepted crypto currency and there are some that are totally against it. There are large number of countries that are against the use of crypto currency. Australia is one such country that have accepted Bit coin but it is not considered as money or currency. It has been considered as a property for tax gain purposes. This has affected the financial institutions as it is not required to involve ant third while making transaction in Bit coin community.
Economic
The market capitalization of Bit coin is still very minimal when compared to the overall GDP of the country. Crypto currency will not affect the policies or ability of the government to conduct policies. However, there are large number of merchants that are using and have started using Bit coin. The current value of Bit coin in terms of Australian currency shows that 1 Bit coin is equivalent to 9612.75 dollars (Janda 2018). However, due to the bubble burst the value of Bit coin has diminished significant due to bubble burst and it is expected to go down even further. This is due to the fact that crypto currencies does not have any intrinsic value like the other commodities in the market. Therefore, it is unlikely that financial institutions will face any issue in the recent years. However, there are chances that these concept may cause a shift in the paradigm.
Social
The society has readily accepted this new form of currency only because of the fact there had been staging 900% increase in the value of Bit coin before the bubble burst (Hern and Partington 2018). Moreover, as the users can maintain their anonymity and make improvements to their level of reach and savings. However, the awareness among the consumers are still less but is expected to increase significantly as more and more merchants are adopting these new payment method and technology.
Technological
Bit coin is still in its nascent state where the majority of the Bit coin users are the early adopters and visionaries. In terms of technological point of view, crypto currency is a new form of technology which is being used for trading between two parties without any intervention from a third party. Block chain is a record list which keeps all the transaction data secure and is used by all the digital currency (Hern and Partington 2018). The technology is going to advance even further which will definitely have a positive impact on crypto currency and its use in the present market. However, currently the market is still niche due to the limited number of users.
Environmental
The increase in demand of Bit coin and other crypto currency will result in the demand of computer devices which will increase the level of carbon emission within the organization. Therefore, the technological advancement in the field of crypto currency will definite increase the emission of harmful into the atmosphere in all countries adapting to this new currency system.
Legal
The majority of the countries initially did not have regulations placed for crypto currencies and it took time for majority of the countries to acknowledge Bit coin due to its decentralised nature. However, Australian government have set their fixed set of rules and regulations where they consider Bit coin as an asset in the market used for gains in tax purposes and reduction in cost for transaction of funds.
The key driving factors in the industry are globalization, consumer needs, technology, demands and financial innovation. However, the advent of crypto currency has totally changed the currents scenario in the market and the high demand of the crypto currency has forced the government and authorities have been forced to regulate digital currency. The purchase of crypto currency had been similar to trading in the traditional share market. However, there has been significant halt in the purchase and selling of Bit coins as they feel that the banking sector is unwilling to work with the digital currency industry (Anz.com.au 2018). The major uncertainties arises due to the fact that there is no clarity of the extent to which self-regulated environment can be developed. The Australian have become cautious and they do not want to take part in dealing of digital currency that has not been properly regulated till now.
The major dealers of crypto currency in Australia, Coin spot has suspended the deposit of Australian dollar which has led to public outrage in the industry. Australian banks had made an effort to stop the dealing in crypto currency and have even closed several accounts. These shows that the banking sector considers themselves at risk and does not want to work with the digital currency organization. It has been claimed that the big four banks, among which ANZ bank is a member has been criticized for banning any kind of dealings with the crypto currency market (Hern and Partington 2018).
ANZ bank has even refused transfer of money in case if they feel that it is against the laws and policy and may lead to money laundering. ANZ bank had exercised its discretion in closing an account if they consider the conduct of the account holder to be unsatisfactory. Majority of the banks are worried about the fact that merchants are accepting crypto currency which making purchases and this is making the law makers agitated due to the rapid disruption n innovation in the industry (Redman 2018). Bit coin is not controlled by any government and ledgers are distributed to the users on a global basis. Therefore, it is expected that there will be rapid shift in the power of currency transaction. Initially, central banks and governments are responsible for regulating transaction and this shift has resulted in panic among the banks in Australia. ANZ bank confirmed the fact that it will not prohibit the consumers form trading in crypto currency and accepting them as a mode of payment but these activities will be monitored (Ellis-Jones 2018). Therefore, the unusual behaviour of the consumers will be checked for potential fraudulent activities and check for activities that are not in line with the regulatory polices specified by the regulatory boards. However, the adverse effect of crypto currency on banks in Australia is still less when compared to other countries.
In the past decades it has been seen that the banks have experienced by capitalizing on interest, loan rates and mortgages. The banks had full power and control over all the financial products and instruments, the way they have been sold and presented to the consumers. The advent of the crypto currency shows the shift in the power which have heavily affected the rivalry in the market.
The five factors included in the porter’s five forces are threat of new entrant, bargaining power of the supplier, bargaining power of the buyers, degree of rivalry and threat of substitution.
Threat of new entrant
The threat of new entrant in the banking industry is low as it is quite difficult to obtain a banking license. The number of ICOs have increased significant and it is accessible to everyone (chung 2018). Moreover, obtaining a banking license in current context is much more easier which shows that threat of new entrant in the market have changed from low to high after emergence of crypto currency.
Bargaining power of the buyers
The bargaining power of the buyers was low as consumers did not have the power to exert any influence on the different financial products in the market. However, the advent of crypto currency have shifted the control to the consumer side and they can decide the currency they want to trade in and make payments without any mediator in between due to the use of block chains (Chau 2018). Moreover, they have the power of protecting and growing their assets. Therefore, the bargaining power of the buyers have become high.
Bargaining power of the suppliers
The banks do not use any suppliers and are not dependent on them which is the reason that the bargaining power of the suppliers had been low (Pash 2017). This has remained the same even after the introduction of crypto currency.
Threat of substitution
Earlier all consumers were solely dependent on the FIAT currency so the threat of substitution had been low in the industry. However, crypto currency and direct payment solutions are acting as substitutes for the FIAT currency and traditional banking systems. Therefore, the threat of substation have become high in the industry (Chung 2018).
Degree of rivalry
The power had been low as only the industry giants hold the power in the industry but the crypto currency has majorly increased the level of competitive rivalry which balanced the market place with appropriate demand and supply (Chau 2018). Therefore, the competitive rivalry in the industry have increased significantly.
It can be seen that even though the banks have been in comfortable position till the emergence of digital currency and they are losing the majority of their advantage. This is very much evident from the porter’s five forces which shows the shift in four out of the five factors that have turned against the banks.
The rumelt’s criteria is used to define the strategic position of any company and in this case ANZ bank. The Rumelt’s criteria is used to check the efficiency, effectiveness and alignment of the strategies goals and mission of the business (Grant 2016).
|
Strategic options |
Consonance |
Advantage |
Consistency |
Feasibility |
|
Incorporating block chain on commercial property deals |
yes |
yes |
yes |
yes |
|
Allowing consumers to trade in crypto currency |
yes |
yes |
yes |
yes |
|
Develop effective rules and regulations for incorporating and facilitating trading in crypto currency |
no |
yes |
yes |
no |
|
Accepting payments in crypto currencies |
no |
yes |
yes |
no |
The evaluation of the Rumelt’s criteria shows that ANZ bank have been slowly incorporating crypto currency and Bit coin. However, the organizational rules and regulations are still not advanced enough to deal with the risk of dealing in digital currency. Moreover, accepting payments in form digital currency increases the level of risk for ANZ.
Conclusion
Thus, it can be concluded from the report that crypto currency has profoundly affected the banking industry and have given more power to the consumers. The dependencies of the general population on the banks for transactions have been reduced. However, the banks have not advanced enough to incorporate ICOs and other digital currencies which is the very reason that banks have been tensed about it. ANZ bank has developed effective strategies and are among the only few major banks to respond positively to the development in crypto currency.
References
Anz.com.au., 2018. ANZ Personal Banking | Accounts, credit cards, loans, insurance | ANZ. Retrieved from https://www.anz.com.au/personal/
Ato.gov.au., 2018. Tax treatment of crypto-currencies in Australia – specifically bitcoin. Retrieved from https://www.ato.gov.au/general/gen/tax-treatment-of-crypto-currencies-in-australia—specifically-bitcoin/
Chau, D., 2018. Bitcoin: The big four banks aren’t planning a crackdown … yet. Retrieved from https://www.abc.net.au/news/2018-02-05/big-four-banks-not-planning-bitcoin-clampdown-yet/9398234
chung, f., 2018. ‘Banned from 30 Australian banks and counting’. Retrieved from https://www.news.com.au/finance/money/investing/coinspot-rubbishes-liquidity-claims-says-it-is-getting-closer-to-turning-on-australian-dollar-deposits/news-story/ac5de7b98696121adace52b3157b8ca7
Ellis-Jones, F., 2018. Banks ‘unwilling to work’ with Bitcoin traders amid regulation concerns. Retrieved from https://www.abc.net.au/news/2018-01-03/banks-unwilling-to-work-with-bitcoin-traders/9302340
Grant, R. M., 2016. Contemporary strategy analysis: Text and cases edition. John Wiley & Sons.
Hern, A. and Partington, R., 2018. Bitcoin’s January fall wipes off $44bn in value. Retrieved from https://www.theguardian.com/technology/2018/feb/01/bitcoins-january-fall-wipes-off-44bn-in-value
Janda, M., 2018. Bitcoin ‘bubble’ dwarfs dotcom boom, prices ‘have a lot further to fall’. Retrieved from https://www.abc.net.au/news/2018-01-18/bitcoin-bubble-prices-have-lot-further-to-fall-capital-economics/9338532
Pash, C., 2017. ANZ and Westpac just successfully used blockchain on commercial property deals. Retrieved from https://www.businessinsider.com.au/anz-and-westpac-just-successfully-used-blockchain-on-commercial-property-deals-2017-7
Redman, J., 2018. Cryptocurrencies Are Pushing Semiconductor Innovation and Profits – Bitcoin News. Retrieved from https://news.bitcoin.com/cryptocurrencies-are-pushing-semiconductor-innovation-and-profits/
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