As the old saying goes: “Money makes the world go round”. The modern economy is dictated by the influx and fluctuation of money into domestic markets. Any disruption coming from movements within hedge funds, capital markets and local trading; sends ripples across the global financial market. History tells us that the succession of technology utilized in banking and finance has an adverse effect on investor sentiments, market outlooks and the market movement. The perfect example of how tech instilled market fears was based on a computer bug, known as Y2K bug where years before the turn of the century, there were fears allayed by bankers, traders and consumers about how the supposed Y2K bug will render banking, commercial and financial services inoperable, thus bringing about a global financial meltdown.
Looking back then and what we have today, banking and finance are being shaped once again with the advent of Blockchain. Unlike the mad rush on system updates prior to December 31, 2000, Blockchain is relatively a silent revolution that is hardly felt by consumers, but its impact is wide-reaching within the banking and finance as it is reshaping processes, policies and roles.
Use Cases of Blockchain on Banking and Finance
Fast forward 2018, the biggest backers of Blockchain enabled systems in finance happen to be the largest financial institutions of the planet from Goldman Sachs, Wells Fargo, the Bank of America among others. In just a few years, Blockchain was fast tracked from disruptive idea into subsidized operations that warrant a successful use case of Blockchain technology being incorporated into banking, commerce and finance.
- Cross Border Payments – With Blockchain, bank to bank transactions can enable cross border payments that are 100% auditable in a decentralized ledger minus third party verification. In 2016, the first cross-border transaction between banks was successfully enacted by Commonwealth Bank of Australia and Wells Fargo, involving payment for shipping that was worth $35,000 USD.
- Stock Market 2.0 with Blockchain – The stock market was also disrupted by Blockchain minus fears, worries and no adverse effect on a day’s trade. With Blockchain, the day to day global trade in stocks that comprise a multi-layered process involving — pre-trade, trade, post-trade and custody, and securities servicing, will see a significant reduction on risk, redundant processes and costly human mistakes. Blockchain enabled on stock trading also allow seamless and instantaneous liquidity.
In 2015, Nasdaq unveiled the use of its Nasdaq Linq Blockchain ledger technology that has since completed several rounds of completed private securities transactions for Chain.com.
- Smart Contracts as Bonds – Middleman services such as brokers, notaries and agents have been a staple of financial services, but through Blockchain. But with the rise of Blockchain, the industry is facing a future without middleman through self-executing “smart contracts” where the deal initiator simply agrees to a contract (assuming he or she knows thoroughly the enrolled policy), the contract executes itself, places itself across the pipeline and enrolls itself into maturity. According to Santander Bank’s innovation fund, the Santander Innoventures, Blockchain enabled technology can lead to $15 – $20 billion in annual savings in infrastructure costs by 2022.
- Private Banking Identity and Transactions – Blockchain operates on a distributed ledger technology where a banking client’s details and transaction records where a central custodian does not hold all of the client’s personal and financial information. Banking clients can transact securely and privately, minus paperwork and lessens the chances of unauthorized distribution of payment or banking slips. While each transaction is labeled as “transparent”, the Blockchain enabled banking system does not publicly divulge a client’s information as that information is encrypted and scattered across several ledgers.
- True Peer to Peer Payments Enabled – Peer to peer payments will also be facilitated by Blockchain enabled banking within the near future. This will allow for a faster and more efficient transaction for both client and in-house banking operations in recording each P2P payment. Earlier this year, Fujitsu has announced a partnership with local Japanese banks to enable a “more seamless, user-friendly, user-experience” P2P process using a Blockchain enabled system that will reflect in real-time, the financial chances on their client’s linked banking accounts.
Is Blockchain for Banking and Finance an Exclusive Club?
When bitcoin was introduced, its supporting architecture of Blockchain was considered an anathema to the existing finance and banking infrastructure’s centralized ledger. Forward over the years, it is the large banks, financial institutions and top tech companies that have formed consortiums that are pushing the concept of Blockchain into operational reality. Through consortiums that involved mutual pooling of resources, development and a shared interoperability ecosystem, Blockchain use was quickly deployed from proof of concept, to lab trials and into use test cases.
Leading the Blockchain revolution are the consortiums as they are pioneering the movement of the present, to the future of the industry. With their resources, industrial networks and technology, Blockchain for banking was a concept quickly taken from a small lab trial into a highly industrialized production environment. Meanwhile, a large portion of non-Blockchain movers or the “wait & see” comprise of smaller players within their respective industry. With considerably less resources, smaller network and not having access to newer tech, smaller players are falling behind when it comes to Blockchain adoption.
There is truth in the old saying “There is strength in numbers” which is a reality when it comes to the many smaller players that have yet to work on a transition framework towards Blockchain adoption. With numbers, decision makers must make use of the common interest of their peers in order to either band together through key partnerships or form a knowledge group as a form of consortium to start the process of Blockchain learning, to identify opportunities, identify technical obstacles and the success of use cases similar to their situation in utilizing Blockchain.
The report highlighted by McKinsey & Company suggested that the success of Blockchain’s adoption framework is highly dependent on the strength of collaboration between consortiums and workgroups. The bigger players realized this first and since then, the division of commercial interest made way for strategic partnerships. Smaller players must adopt the mindset held by the bigger players: through consortium and joint-projects, they were able to deploy the successful Blockchain use cases.
As early as now, decision makers from smaller players, regardless of their industry must see Blockchain as the coming of the fourth industrial revolution where business opportunities such as incrementally decreasing processing costs while exponentially increasing process efficiency.
DynaQuest, a BPO and ITO company in the Philippines is among the players in the shared services industry that has been active in forming key partnerships in starting the Blockchain enabled business for businesses in the United States and Europe. Companies can utilize our expertise on knowledge framework, deployment of turnkey solutions and network connections to start a Blockchain proof of concept.
DynaQuest Technology Services Inc.
19/F Uptown Place Tower 2 11th Drive
Uptown Bonifacio 1630 Taguig City
+63 2 2241862
+63 2 403 1495