Friend or foe: Can ledger technology disrupt Singapore's financial services?

Its ability to simplify transactions may remove the need for brokers.

One of the domains of fintech, distributed ledger technology (DLT), could disrupt financial services due to its ability to simplify the transaction process and reduce the number of brokers, UOB Kay Hian said.

According to an analysis, the three other key domains of fintech, namely, artificial intelligence (AI), cryptography, and mobile access, are considered as enablers as they allow banks to reach and serve a wider audience with a leaner cost structure.

Despite DLT's disruptive nature, cryptocurrencies, which are currently handled by the platform, do not affect central banks' ability to regulate money yet.

Meanwhile, central banks have yet to introduce retail cryptocurrencies as complex issues on financial stability are inadequately addressed.

UOB Kay Hian said central banks could introduce their own wholesale cryptocurrencies, especially if existing wholesale payment systems are near-obsolescent.

For now, the Monetary Authority of Singapore (MAS) is conducting trials on wholesale cryptocurrencies, securities settlement and cross-border payments, which are practical areas where DLT could be applied.

"We see the potential negative impact on earnings from disruption by DLT to be minimal," UOB Kay Hian Jonathan Koh said.

PayNow and potential new payment options using cryptocurrencies could affect fees from credit cards.

However, the negative impact is not considered significant as PayNow facilitates low-value payments, which are currently made primarily through cash.

Koh suggested that DLT could be applied to clearing & settlement for foreign exchange and derivatives traded between banks, but the MAS has not conducted any trials in this direction.