According to industry data, large investment banks and financial institutions have already spent over $1 billion to develop and implement blockchain technology for everything from payment systems to credit default swaps. Here are some of the ways blockchain technology is being adopted by banks and financial institutions for everything from security to modernizing antiquated and outdated systems.
More than Cryptocurrency: Banking Applications for Blockchain
According to Accenture:
Blockchain and distributed ledgers have a bright future. As real-time, open-source and trusted platforms that securely transmit data and value, they can help banks not only reduce the cost of processing payments, but also create new products and services that can generate important new revenue streams.
So how are traditional banks and financial institutions, which are beholden to regulatory and compliance restrictions and often notoriously slow to embrace change and innovation, betting on blockchain?
In addition to getting into the digital payments game and experimenting with their own forms of digital currency for global payments systems, banks like JP Morgan Chase, Goldman Sachs, Bank of America, and US Bank among others actively investing in the development of digital ledger technology applications across a spectrum of areas such as:
- Smart contracts – digital rights, wagers, escrow
- Securities and digital currency – equity, private markets, debt, crowdfunding, derivatives
- Record keeping – title records, ownership, voting, intellectual property
According to the World Economic Forum:
While research and experimentation with blockchain technology across sectors has been underway for several years, few organizations have deployed it. Although central banks are among the most cautious and prudent institutions in the world, a new white paper published by the World Economic Forum indicates that these institutions, perhaps surprisingly, are among the first to implement blockchain technology…Over the next four years, we should expect to see many central banks decide whether they will use blockchain and DLT to improve their processes and economic welfare. Given the systemic importance of central bank processes, and the relative immaturity of blockchain technology, the banks must carefully consider all known and unknown risks to implementation.
But the benefits of blockchain adoption by banks and financial services providers extend beyond institutional processes and transactions; they are also extending to retail and customer facing applications to help modernize and improve transactions for their customer base. For example, retail banks are working to establish decentralized peer to peer cashless transactions for consumers based on central bank issued digital currencies, which would allow for use without a central intermediary.
But the enhanced security features of blockchain technology are also being used to enhance the customer experience with one of the most important factors for the modern consumer: convenience and ease of use, particularly by way of secure apps. Several banks in Canada are reportedly using blockchain to allow consumers to securely verify their identity through a banking app. According to Peter Tilton, Royal Bank of Canada’s senior vice president of digital, “Security and trust are two expectations that consumers have when it comes to their personal information and digital identity. Creating seamless and convenient experiences that consumers have come to expect, based on these imperatives of security and trust, are fundamental to meeting their evolving digital needs.”
While the global banking and financial services industry will not evolve overnight or become immediately accessible to the levels of disruption and adoption seen in fintech startups for example, the industry is already placing significant investments across key areas such as clearing and settlement, payments, trade finance, identity protection, and syndicated loans.