Blockchain start-ups may underestimate the advantages banks and custodians have already, according to Morgan Stanley.

In a new research note - Blockchain in Banking: Disruptive Threat or Tool? -  analysts at the firm reckon new fintech players face a tough challenge to make a meaningful breakthrough.

“Not one policymaker we met with on blockchain gave even a second thought to an unpermissioned distributed ledger,” said Huw Van Steenis, head of European bank research at Morgan Stanley.

“Nor would the banks, given concerns on Anti-Money Laundering (AML) and Know Your Customer (KYC).”

“As a result, we think industry supported consortia rather than venture capital sponsored start-ups will have the edge.”

Banks and custodians will need to invest to deliver faster, less expensive financial services while ensuring 24x7 viability and security.

But they have the client relationships. If they can deliver a more streamlined process with lower costs, Morgan Stanley says they will be a formidable competitor.

“We expect that financial industry blockchains will be built around industry consortia – which agree common standards – with close regulatory support” Van Steenis adds.

Jeffrey Billingham, who heads up Chain Gang, Markit’s group implementing distributed ledger technology, reckons only true "forward thinkers" will capture the opportunity on offer.

"The financial industry needs to understand blockhain’s potential to transform management of collateral and securitize a range of financial products," he said in a recent note.

Stats show the financial industry has invested over $1bn in the last 14 months to support blockchain consortia, pilot programs, companies and other efforts to create consensus about implementing blockchain.

Yet a clear implementation strategy remains elusive.

Billingham says the partnership approach seen so far is "atypical" of how innovative technology enters a market.

"We would expect the industry to eschew consensus and exhibit bolder, unilateral moves in pursuit of competitive advantage," he said.

"Moreover, if incumbent institutions were slow to move, we would expect blockchain startups to build new banks."