Chip Off The Old Blockchain

The technology behind cryptocurrencies, such as Bitcoin, has come a long way fast, and its potential to change the financial services landscape is only just beginning to be explored.


As attendees get ready to join their peers at SWIFT’s annual Sibos conference in Singapore this month, one subject that is likely to be discussed and debated at length is the blockchain.

Blockchain, or distributed ledger technology, holds the promise of vastly improving speed and security around transaction processing and settlement.

A number of initiatives are under way to explore both the opportunities, and the challenges, to exploiting its potential within financial services.

One major initiative R3, now includes 22 banks (names such as Bank of America, Bank of New York Mellon, Mitsubishi UFJ Financial, Citi, Commerzbank, Deutsche Bank), and is exploring how the blockchain and distributed ledger could be used within financial services.

A recent study cosponsored by Santander InnoVentures, venture investment and advisory firm Anthemis and international management consulting firm Oliver Wyman, suggests that distributed ledger technology could reduce global banks’ payments, securities and compliance infrastructure costs by as much as $20 billion by 2022.

Blockchain technology could increase efficiency in areas such as cross-border payments and in the securities and derivatives markets.

As an example, the backbone ledger updates in minutes, which could vastly reduce collateral and settlement costs in the derivatives market.

It would allow end users—corporate and bank alike—to move collateral around much more quickly—which would help dramatically in meeting new derivatives market rules launched after the financial crisis.

Another example currently being tested is in the securities space. A security, say a bond, could make use of the blockchain to automatically issue coupons and execute terms based on a“smart contract.”

“Proponents argue that the biggest challenge today faced by FIs [financial institutions] is that they are tasked with processing, recording, reporting (to, amongst others, regulators), reconciling and auditing ever increasing amounts of sensitive transaction data,” notes Wolfgang Stockinger, head of cash management solutions for institutional cash, product management, global transaction banking, Deutsche Bank.

Distributed ledger technology has the potential to overcome issues such as outdated legacy infrastructure, lack of transparency and largely unencrypted data, among other things.

“Many banks including Deutsche have launched initiatives to analyze and carry out a proof of concept on this subject,” said Wolfgang in a recent interview with Global Finance.

But it will be some time before the blockchain is even close to realizing a fraction of the uses for which it is being hawked.“We are still in the early stages of development here.”