A report from management consultant McKinsey suggests that retail banks have been slower to adopt blockchain technology because they face more challenges in reaping the potential benefits.
Chief among the headwinds to greater blockchain adoption is the tough regulatory environment around consumer finance and the poor reputation of cryptocurrencies such as bitcoin which have made the retail banking sector "nervous and cautious" about any blockchain-related initiatives, says the report's author Matt Higginson.
In contrast, the investment banking world has experimented extensively with blockchain and launched a number of initiatives around bond issuance, trading settlement, trade finance, private equity and fund distribution.
However, Higginson suggests that the retail banking market's continuing cost pressure may encourage more banks to consider blockchain-based projects. Potential examples cited in the report include remittance payment processing, fraud prevention and regulatory reporting.
McKinsey estimates that as much as $4 billion could be saved on cross-border payment costs by adopting distributed ledger technology while a further $1 billion could be saved in client-boarding costs and an estimated $9 billion could be recovered in fraud prevention.
Another obstacle to adoption has been the difficulty in fostering collaboration among highly competitive retail banks and overcoming the challenge of creating a trusted digital identity in a decentralised network.
McKinsey suggests that making it easier to exchange conventional currency for digital assets and creating a clearer regulatory picture might help increase adoption.