Standard & Poor's could consider making rating changes of major financial institutions if the use blockchain technology becomes widespread and starts to impact current business models, the global ratings agency said.
In a report published Wednesday, S&P said that it believed the rising investment in blockchain technology suggested that a "transformation" of the financial industry could be underway.
Blockchain works like a huge, decentralized ledger for the digital currency bitcoin, recording every transaction and storing this information on a global network so it cannot be tampered with. It's this technology that banks feel can be used in areas from remittances to securities exchanges in order to slash costs and create a fraud-proof record of transactions without the need for third-party authorization.
S&P said the technology could streamline back-office operations, shorten clearing and settlement times, facilitated payments and generate new revenue streams for financial institutions from banks to asset managers.
But don't expect widespread use of blockchain soon.
"While blockchain technology will likely be used for niche applications, market-wide adoption is a long way off, since it will require consensus among market participants and, in some cases, regulatory approval," S&P said.
"As a result, we do not see blockchain as a rating driver in the near term or even perhaps in the long term. But we consider that, depending on the technology's eventual application and whether it takes hold in the financial industry, it could have a substantial impact on institutions' business models."
S&P said that it could give firms a competitive advantage or even begin to "diminish the relevance" of certain business models. In this case, S&P said it could "consider rating changes if its widespread implementation occurs faster than we currently expect, resulting in an extensive impact on financial institutions' operating models".
So far, may major banks have been trialing blockchain technologies with a firm called R3 working with lenders to test out the technology's potential uses. On Monday, Wells Fargo and the Commonwealth Bank of Australia (CBA) demonstrated one of the first real-world uses of blockchain technology to process and execute a shipment of cotton from the U.S. to China.
