Blockchain can bring drastic changes to the banking industry by significantly cutting down the risks and costs associated with data and transaction processing. Last year, McLagan, a financial consulting firm collaborated with Accenture to analyze the operational data of the top eight leading investment firms in the world to get a better understanding of blockchain benefits for banking institutions.
For this purpose, McLagan’s data was used to assess 50 operational metrics against Accenture’s High-Performance Investment bank model. In the end, the study revealed that banks could considerably cut down their costs by moving towards blockchain related solutions.
More recently, a report from Juniper Research, a leading market research firm, concluded that banks would be able to realize savings of up to $27 billion on cross-border settlement transactions by the end of 2030 with the deployment of blockchain technology.
Key banking areas that are likely to benefit from blockchain technology
In addition to the cost savings in cross-border settlement transactions, the report suggests that banks will be able to reduce operational costs in areas related to treasury and compliance. For the latter, the savings would mainly come from the automation of money laundering checks, which would bring costs down by up to 50% within the next two years when using blockchain technology.
However, the report also reiterated the fact that these cost savings will be achieved gradually and might take several years as traditional legacy systems will continue to run alongside blockchain services. Besides banking, other key industries such as food export trade will be able to reduce fraud related costs by almost half within a 12 year period.
Coincidentally, IHS Markit had also predicted a similar trend in the last year indicating that blockchain applications could lead to a drastic transformation of the financial industry.
Impact of blockchain on the financial industry
Blockchain technology can help streamline operations for the banking industry by speeding up transactions which would benefit both banks and their customers. For example, British bank Santander is already using the blockchain technology for faster processing of international payments through its smartphone app. American Express has also collaborated with Santander for providing blockchain based cross border payments through the blockchain start up Ripple.
Additionally, IHS Markit has suggested that the other areas of financial management which would reap benefits from this technology include claims management, collateral management, derivatives and share trading, assets custody along with corporate actions processing. Because of the large size of the sub sectors of finance, the industry as a whole will vastly benefit from the use of blockchain.
In a nutshell
Blockchain is set to drastically transform the financial industry but it will require some framework changes to ensure maximum adoption of this technology. The successful adoption of blockchain also depends on several factors, especially for companies relying on a common set of rules or regulations, privacy and security standards which are critical business requirements for these companies.