Other parts of this series:
Blockchain is a hot discussion topic these days—but then, bell bottoms once were too. What is blockchain? Does it matter for financial services? Is it just a fad?
In this series of blog posts, I’ll answer these questions, present industry use cases for blockchain, and look at what the future holds for blockchain in financial services (FS).
We’ll start by answering three fundamental questions.
What is blockchain?
In simple terms, a blockchain is a distributed, incorruptible digital ledger of transactions. Every transaction on the ledger is validated and recorded by a network of computers. After a transaction is validated by the network, no single user can alter the record of that transaction.
Blockchain makes new levels of transparency, security, and accountability possible in digital networks. It was originally developed to support the cryptocurrency Bitcoin, but it has many other exciting applications, including in financial services.
In fact, blockchain’s flexibility fuels the hype that surrounds it—hype that can cloud sound business judgement. The key to understanding blockchain’s uses in financial services is to understand where it creates value. Most of the hype right now is attached to Bitcoin, Ethereum, and other cryptocurrencies which are irrelevant to value creation for financial services firms.
Does blockchain matter for FS?
In a word: yes. Blockchain has enormous potential to change the FS industry.
For example, recent Accenture analysis of blockchain’s potential impact on investment banking found that it could deliver savings of more than 30 percent across the front and back offices.
These findings are not theoretical. Accenture’s research used data from eight of the top 10 investment banks, which are already using blockchain. Our analysis found that blockchain could cut the reporting cost for central financing costs by 70 percent and reduce costs for compliance and central operations by 50 percent.
Some FS organizations may be interested in blockchain’s disruptive potential. For example, its ability to facilitate secure, transparent transactions in low- or no-trust environments could disintermediate many traditional financial services. Blockchain could make bank branches obsolete, for instance. The trust created by blockchain also eliminates barriers to entry for new competitors in FS, from fintechs to tech giants like Amazon and Google.
Whether or not Amazon gets into banking or blockchain kills bank branches, one thing is clear: the blockchain genie is out of the bottle. If you’re not on board already, now is the time. As with many new technologies, early adopters will enjoy substantial advantages. FS organizations are already making investments in blockchain applications for clearing and settlement, payments, trade finance, and beyond.
How can I leverage blockchain?
Blockchain is so powerful and flexible that knowing where to get started can be a real challenge. Accenture suggests thinking through the following key questions to kickstart your blockchain journey:
- What is your strategy to evolve your business to the next level and what recent innovations will be useful for this?
- How do your investment plans align with the development of available technologies and market offerings? Are you investing within the limits of today’s capabilities or tomorrow’s potential?
- Are you plugged into networks to stay informed and be an active player in shaping how the future of blockchain in FS will play out?
- Have you explored the human and technology resources required to support blockchain technology environments?
If you’re wondering how you can convince a board of directors that blockchain is worth investing in, know that smart investments in blockchain will pay for themselves—with interest. For instance, Accenture research suggests that blockchain could cut compliance costs for investment banks by 50 percent.
If you need help demonstrating this, or you have any other questions about blockchain in FS, I’d love to hear from you. My contact information can be found at the top of this post on the right.
Join me in my next post, where we’ll look at five use cases for blockchain in FS.