It’s a continual challenge to ensure transactions of all kinds are accurate and secure. Many financial institutions have tried solutions to meet all of those three transactional requirements at once but with varying success. Some firms, such as the global powerhouse Santander Bank, are using blockchain to offer secure international transactions.
Here’s a look at blockchain technology and how you may be able to implement it for your financial institutions:
Blockchain is a public digital ledger of linked transactions shared among a network of participants.
For the financial services industry, blockchain has far-reaching implications. It enables firms to shift to a shared database, rather than maintaining a centralized database of transactions which is more vulnerable to cyber threats and has a single point of failure.
Prospective Benefits of Blockchain for Financial Institutions
Financial institutions can leverage technological advancements like blockchain to improve data security, reduce costs, and increase profitability. Blockchain technology can bring about significant savings in the following areas, according to a joint report by Accenture and McLagan:
- Enhanced Compliance: Improved auditability and transparency of transactions can lead to a 30–50 percent decrease in compliance-related costs.
- Better Infrastructure: Employing blockchain technology can lower infrastructure costs for eight of the world’s ten largest investment banks by an average of 30 percent, or an equivalent yearly savings of $8 billion to $12 billion.
- Streamlined Operations: Relevant operation costs in business and office, clearance, and settlement can shrink to 50 percent because of a lesser need for confirmation and reconciliation of transactions.
- Improved Reporting: As a result of optimized transparency and internal controls, reporting costs could drop to 70 percent.
With these benefits, various financial firms are now embracing blockchain and integrating the technology into their systems.
Success Stories: How Financial Institutions Are Adopting Blockchain
A number of organizations have jumped in and implemented blockchain in their own ways. Below are some success stories in blockchain adoption for financial institutions.
International Money Transfers
Blockchain provides a more secure method of delivering cross-border payments. These organizations are using blockchain for international transactions:
- Santander launched Santander One Pay FX, a foreign exchange service powered by blockchain technology to enable same-day international money transfers. The service is currently live in Brazil, Poland, Spain, and the U.K., and is expected to roll out to other countries in the coming months.
- Through its FX International Payments platform and its partnership with blockchain startup Ripple, American Express allows corporate customers in the U.S. to make non-card payments to U.K.-based businesses. Because funds are traceable and sent in real time, blockchain technology can speed up cross-border payments between the U.S. and the U.K.
- Together with Australia and New Zealand Banking Group Limited and Royal Bank of Canada, J.P. Morgan introduced the Interbank Information Network. The network uses blockchain technology to improve security and minimize delays in the global payments process. Other correspondent banks are expected to come on board in the following months.
Blockchain can be programmed to enforce financial transactions after certain conditions are met, essentially producing a smart contract. Smart contracts are an alternative to physically signed documents that are prone to errors and can increase the risk of fraud. These contracts can be integrated into mortgage lending and automated insurance claims processing, among other transactions.
Launched in 2017, J.P. Morgan’s Quorum is an open-source, enterprise-focused distributed ledger and smart contracts platform designed to address the specific needs of the financial services sector. Its smart contract execution allows for privacy on the transaction level and transparency on the network level, and can be customized to suit organizational requirements. J.P. Morgan has recently tested debt issuance on the platform with the National Bank of Canada, Goldman Sachs Asset Management, and other firms.
Clearance and Settlements
Australia’s primary stock exchange, the Australian Securities Exchange (ASX), will move to a blockchain-powered system to clear and settle trades. In 2016, the ASX partnered with Digital Asset Holdings, a blockchain startup based in the U.S., to develop and test the new clearing and settlement system.
With this new system, the ASX aims to speed up transactions, make them more secure, and lower transaction costs. Reduced costs would greatly benefit investors and traders in the long term.
Using blockchain technology can result in more efficient and timely securities trading. Instead of a traditional process that can take days, trading becomes instantaneous with blockchain.
With the help of a blockchain-based application, Credit Suisse and ING have recently completed a securities lending transaction amounting to $30.48 million. The trade was one of the first instances of a capital markets transaction occurring on a blockchain-powered system, going beyond a proof of concept and into a real-life commercial setting. The transaction entailed both banks to exchange baskets of securities on a blockchain platform. The application is expected to go live by the end of the year.
With today’s cybersecurity threats, the need for network data security has never been more crucial. Blockchain technology can help address this need, providing a way to overcome security threats while facilitating accurate transactions.
DataComm serves as an extension of your organization with a team of financial experts who are constantly in the know about upcoming trends. Contact us today to learn more about how we can help you evaluate your technology options.