Blockchain is likely to have a significant impact on the financial industry, says former Treasury Secretary Larry Summers. Speaking at the Consensus 2016 conference in New York, he said he believes the technology has a serious potential to improve the existing financial system.
The amount of fees currently charged by credit card processors is too high, according to Summers. Blockchain, meantime, will allow banks to reduce transactional costs by avoiding the middlemen.
“In a world of very sophisticated information technology, it’s kind of a remarkable thing that if I go outside and buy a $400 pair of headphones, $8 will be removed for processing the payments. That’s a lot,” he told Fortune’s editor Alan Murray, who moderated the interactive session.
Summers also referred to the technology’s potential to speed up the transfer of digital assets. This, in turn, will let companies to cut sums they pay to clearing houses.
When speaking on the future of digital currency, he was less confident. The technology underpinning bitcoin, he noted, is more likely to reach wider adoption than the cryptocurrency itself.
Summers said bitcoin is unlikely to create “a libertarian paradise” and added that the authorities will continue enforcing laws. He is convinced the government will alter existing legislation to cover the digital currency.
Summers also added he is not agree with JP Morgan’s CEO Jamie Dimon, who said last year that virtual currency has no chance to succeed as it will be stopped by the government. “Jamie’s a smart guy,” he said. “But Bill Gates is a smart guy too and he said the internet’s not going anyplace.”
According to Summers, the digital currency and blockchain could exist along with traditional fiat currencies. “Is the blockchain technology going to be fundamental to reducing fictions? The answer is overwhelmingly likely to be yes. Is bitcoin going to be a valuable store of value like people use gold? I don’t know,” he said.
Last month, Morgan Stanley issued a new report on blockchain and how it can influence the financial industry. As the bank’s analysts wrote, the technology behind digital currency is unlikely to achieve widespread usage because of several issues, including security and regulation.
They stated that banks are unlikely to be substituted by blockchain companies due to regulatory problems. “Not one bank nor policymaker that we have met with on blockchain gives even a second thought to an unpermissioned public network. KYC, AML and other considerations means it has to be a permissioned network,” the analysts stated.
However, despite the negative issues, the use of the technology is still growing. A month ago, BNP Paribas Securities Services signed a deal with investment platform SmartAngels to use the blockchain technology in the crowdfunding sector.
In addition to advanced trade processing security, the blockchain platform will simplify the management of shareholders for issuers. The move demonstrated how the combination of technology and innovation can enhance customer experience.