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Blockchain will lead the revolution in the banking sector

Blockchain will lead the revolution in the banking sector

Elena Di Simone

Senior Communications Consultant

19 May 2017

Blockchain will lead the revolution in the banking sector


Blockchain has been used to support the realization of crypto currencies like bitcoin, but it actually has a value and a range of applications that go far beyond the electronic currencies. Blockchain is a distributed ledger containing a continuously growing list of ordered records called ‘blocks’. Each block contains a timestamp and a link to a previous block. By design, blockchains are inherently resistant to modification of the data – once recorded, the data in a block cannot be altered retroactively. Thus, all processes that today are based on some form of certification or central control entity can be radically innovated thanks to blockchains.

By recording and archiving all transactions that take place within the network, the blockchain eliminates the need for ‘trusted’ third party for the brokerage. Proponents of this technology often described it as a ‘transfer of trust in a wary world’, based on the consideration that the parties involved in a transaction, although they don’t know each other, may safely exchange money, without the need for a guarantee of a third party. Given this, we can say that the blockchain technology is a game changer and that its strength is precisely the fact that eliminates the need for a central authority that verifies the trustworthiness and guarantees the money transfer.

Rapid adoption

According to two new studies released by IBM, commercial blockchain solutions are undergoing a rapid adoption at banks and financial markets. In fact, 15% of banks and 14% of financial institutions surveyed intends to implement large scale commercial blockchain solutions in 2017 and 65% of banks plans to have solutions in production in the next three years.

The first study ‘Leading the Pack in the block chain Banking: Trailblazers Set the Pace’, conducted by the IBM Institute for Business Value (IBV) and based on a sample of 200 global banks, reveals that over 70% of early adopters surveyed is focusing its efforts, with the idea of minimizing the current entry barriers that prevent to create new business models and reach new potential markets. These pioneers are better positioned to defence themselves against potential competitors, including the ‘disruptors’ belonging to different fields, like fintechs or non-banking start-ups.

Four distinct areas

The second research, called ‘Blockchain Rewires Financial Markets: Trailblazers Take the Lead’, has analysed a sample of 200 global financial institutions and the results show that 7 out of 10 pioneers are focusing their efforts on the blockchain in four distinct areas: clearing and settlement of transactions, wholesale payments, issuance of debt and equity, reference data.

The promise of transparency, consistency and reliability, has drawn the interest of some of the world’s largest banks, including BNP Paribas, Citi, JPMorgan, ING, Unicredit, which joined together in a consortium sponsored by the American R3 to study and define the future of the blockchain. The ECB itself wanted to explore the theme and was interested in understanding the mechanisms in depth.

In fact, UBS and Barclays are already experiencing blockchain as a way to speed up the back-office operations and management. Some professionals in the banking sector claim that blockchain could deliver a global saving of up to 20 billion dollars a year for the industry in administrative costs.

Banks among major investors

Not surprisingly, global banks are among the major investors in start-ups that operate in the sector of blockchain technologies. R3 CEV has already obtained the membership of over 80 of the world’s leading financial institutions and regulators, including UniCredit and Intesa Sanpaolo, to its consortiums created to develop custom solutions blockchain-enabled for the financial sector.

A group of seven major European banks (Deutsche Bank, HSBC, KBC, Natixis, Rabobank, Société Générale and UniCredit) has agreed to develop a ground-breaking shared platform called Digital Trade Chain (DTC) that aims to make domestic and cross-border commerce easier for European small and medium-size (SME) businesses by harnessing the power of blockchain technolgy. At the same time, a group called Thought Machine developed the Vault OS operating system, which uses private blockchain technology combined with a distributed encryption registers to allow any bank to provide secure end-to-end financial systems.

Blockchain implications are numerous and it is still early to say if it will really be possible to take advantage of all the benefits it offers. What it’s certain is that it won’t be enough to only develop technical solutions that address specific issues, but it will also be necessary to implement an important work of information and awareness-raising, involving institutions and citizens.