Blockchain in Banking BIP 360
According to Harvard Business Review, almost every major financial institution in the world is doing blockchain research now. Many are executing smart contracts. These are self-executing contracts, blockchain contracts, or digital contracts. In this format, contracts are converted to computer code, stored and replicated on the system and supervised by the network of computers that run the blockchain. Smart contracts help you exchange money, property, shares, or anything of value in a transparent, conflict-free way while avoiding the services of a middleman. Banks are also developing Blockchain scaling. A scaled blockchain is expected to be fast enough to power the internet of things and go head-to-head with the major payment middlemen (VISA and SWIFT) of the banking world.
Banks are excited about the advantages Blockchain can offer specifically around transaction costs. Many industry leaders feel Blockchain will do to the banking what the internet has done to it. No one envisioned depositing money on your phone which doesn’t require you to ever set foot in a local branch. The true impact of Blockchain on the banking industry is impossible to forecast, but it’s widely accepted that the technology will disrupt the industry like never before. The graph below provides a high-level representation of the typical use of Blockchain in banking.
The potential cost and labor savings Blockchain is predicted to create for the global financial market are spurring significant investment by banks all around the world.
– Know your Customer (KYC): allow the independent verification of one client by one organization to be accessed by other organizations so the KYC process wouldn’t have to start over again.
– Payments: enable higher security and lower costs for banks to process payment between organizations and their clients and even between banks themselves.
Real World Examples
Although banks and financial institutions don’t openly share all their Blockchain initiatives, they do however periodically announce the progress of some of these projects. In addition, there are a host of communities, like the IBM-backed Hyperledger Fabric project, which advertise advances in the banking sector. The group is a trade finance platform aimed at international payments utilizing blockchain, with seven of its largest supporters including Deutsche Bank, HSBC, KBC, Natixis, Rabobank, Societe Generale and Unicredit. Six of the world’s largest banks, Barclays, CIBC, Credit Suisse, HSBC, MUFG, and State Street, have announced backing of the UBS and Clearmatics-spearheaded Utility Settlement Coin, joining other industry heavyweights who have already pledged their support for the project, including BNY Mellon, Deutsche Bank, and Santander. Blockchain consortium R3 is another player in the bank-based blockchain space, raising $107 million in May, with four of its backers being Temasek, SBI Group, Bank of America Merrill Lynch, and Intel, with further support pledged from industry heavyweights such as Wells Fargo and ING.
Although the banks and financial institutions listed above are global, there are advancements that are providing medium to small sized banks helpful advantages. Some of those include:
· Clearing and Settlement — Accenture has estimated that the biggest investment banks could save $10bn by using blockchain technology to improve the efficiency of clearing and settlement.
· Identity — Banks have been trying for years to set up a shared digital utility to record customers’ identities and keep them updated. Blockchain offers a solution because of its cryptographic protection and its ability to share a constantly updated record with many parties.
Blockchain Use Cases
Use Case #1 (Payments) — In 2016, Westpac, one of Australia’s largest banks, partnered with Ripple, an enterprise blockchain solution for global payments, to implement a low-cost cross-border payment system based on blockchain technology. In 2015, CBA, another large Australian bank, was planning to partner with Ripple in order to develop a ledger system on blockchain for payments settlements between its subsidiaries. In 2016, US Federal Reserve was working with IBM to implement a blockchain-based digital payment system.
Use Case #2 (Digital Identity Verification) — Tradle uses blockchain to store proofs of data verifications and give total ownership and control of data to the owner. This means the customer manages the sharing with banks directly, thus the customer becomes the utility. Tradle’s approach enables the owner to share their data across lines of business, with any institution and across any border without breaching any data locality laws, or regulations. Another example is ID2020, a project aimed at creating digital identities for people who have no paper IDs. The project is supported by Accenture, Microsoft, and the Rockefeller Foundation.
Use Case #3 (Credit Reports for Businesses and Individuals) — Lumeno.us is a New York-based startup that provides the blockchain technology financial services so that business owners can securely share their data to get a loan, find trusted partners, or manage a portfolio or network.
Use Case #4 (Peer to Peer (P2P) Transfers) — Circle is a decentralized app that allows P2P transfers. Circle allows its users to deposit money to Circle from a credit or debit card, not dealing with bitcoin at all. Another example of a decentralized P2P app is Bitwala, which combines the functionality of a messenger and P2P money transfer service.
As shown above in the use case examples, Blockchain is relevant in most banking scenarios regardless of the size of the financial intuition. Below, Accenture Research has projected the growth and adaptation of Blockchain. It’s a shared belief that banks that begin exploring how to leverage Blockchain are in fact ahead of the curve.