Banks will face a significant loss of profits due to their inability to compete with Bitcoin companies

Big banks are increasingly concerned about losing profits to fintech companies such as bitcoin startups. According to a recent survey, 88% of bank executives believe their business is likely to be affected by these new players. A leaked memo indicated that Santander could lose up to 10% of its profits due to such competition.

Bank earnings challenge

PricewaterhouseCoopers (PwC), one of the “Big Four” auditing giants, released its 2017 Global Fintech Report earlier this month, which showed that 88% of executives at traditional companies surveyed believed their businesses would be challenged by fintech startups.

Many (bank executives) are concerned that the emergence of innovators will cause them to lose customers, first and foremost in the areas of payments, money transfers and personal finance... Consumers are more willing to choose non-traditional financial service providers.

Last week, Guardian Money reported on a leaked internal memo from Santander that revealed that 10% of the bank's profits came from cross-border cash transfers.

The document details the fees banks charge (six times more than fintech firms) to make higher returns by adjusting exchange rates. Banks typically do not charge customers directly, but instead make money from the difference between money market rates and the rates they offer, known as “foreign exchange margin.”

Guardian Money wrote:

Santander’s money transfer business generates €585m in revenue, equivalent to one-tenth of its €6.2bn global revenue in 2016. Santander charges six times more than its rival Transferwise, a peer-to-peer money transfer service, to send £10,000 from the UK to Spain.

The document alerted Santander executives that new startups entering the money transfer space were "carrying away" the bank's profits.

Once cross-border transfer business begins to be repriced, 10% of the bank's profits will be affected.

Disruptors: Bitcoin Startups

Currently, most money transfer startups use Bitcoin. Most of them charge low fees or even offer it for free. Here are some examples:

Luis Buenaventura, CTO of bitcoin remittance startup Bloom Solutions, said bitcoin's "most powerful application is probably remittances," at least in his country, the Philippines. The company's website states that their goal is to provide solutions for agents and brokers in the cross-border remittance market, saving them at least half of their settlement and foreign exchange costs.

Singapore-based Bitcoin remittance company Coinpip provides services in more than 40 countries around the world without charging any foreign exchange or other additional fees.

Another example is Hong Kong-based Bitspark, a bitcoin remittance company that offers services in five currencies. The company said: “In the current competitive environment, the cost charged by bitcoin companies for the same $250 transaction can be as low as 2% to 3% of that charged by traditional providers.”

Abra's business model is quite different. They use Bitcoin, smart contracts and P2P networks to enable direct transfers between senders and receivers around the world without the need for a middleman. The company's recently launched app does not charge any transfer fees, has a low exchange rate, and allows users to deposit and withdraw funds in the form of Bitcoin.