Stanford Prof: Crypto Will Rain on Banks' Low-Interest Rate Parade

A professor at Stanford Graduate School of Business says cryptocurrencies will put an end to the windfall that banks currently enjoy from low-interest deposits.

"The future is coming, and it will be very disruptive to legacy banks that don't get with the program," he said.

"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."

As the report notes, consumers and businesses currently store around $14 trillion in deposits with United States banks alone that pay out an extremely low rate of interest on average.

Banks currently pay less than 0.1% interest on checking and savings accounts, and only a slightly higher rate on one-year certificates of deposit.

The amount banks receive from routine overnight loans has climbed from 0.3% in 2015 to over 2% in 2019.Slow adopters will fall by the wayside.

This dependence on deposit accounts to process payments by the vast majority of the population ensures huge profits for banks.

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.

"The smartest banks will be on the front edge of this, but others will be reluctant to cannibalize their very profitable franchises," he said.