Blockchain: The new banking sector investment

Blockchain: The new banking sector investment

The high anticipation for blockchain is about to come to an end with the application product and services making its banking sector debut a number of

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The high anticipation for blockchain is about to come to an end with the application product and services making its banking sector debut a number of months from now. An IBM survey carried out in September that incorporated 200 global banks is a testament of the eagerness by respondents. According to a portion of the respondents (15%), they have plans to roll-out blockchain services and products next year while another significant percentage (65%) stated they would do so in the next 3 years.

Recent headlines have indicated the interest in numerous banks – with exception of a very small percentage – to apply blockchain applications. One such example is Santander which confirmed in June that it had initiated a pilot program focused on employees. The program, a cross-border application and which is blockchain-based facilitates link to Apple Pay. Other banks that have also initiated similar pilot trials include: JPMorgan Chase and Bank of America.

With the release set to be in few months, banks planning to use initial block chain services should tone down their initial returns expectations. This is essentially since; the initial use of block chain applications may be preliminarily limited to internal bank applications and cases of targeted use and not necessarily actual money transfer. This is majorly because of uncertainties in regulations.

Initial internal block chain applications will specifically be centered on among others; loan documentation, data transfer for compliance, trade finance, know-your-customer rules and other cases. These internal applications may not necessarily give the banks the comprehensive block chain technological benefits.

To enjoy the optimum benefits of block chain-based products, a bank needs establish a network of participants who can share among themselves both the establishment and operation costs. In actual sense, the optimum value of block chain is only achievable where there are established industrial collaborations that facilitate participant transactions through leveraging block chain.

The 2015 prediction report by Santander estimates that the use of these applications will eradicate clearing mechanisms and central authorities which will subsequently save the banking sector a significant annual figure of $20 billion. Nonetheless, the realization of these benefits may even take a decade.

Banks however will need to finance the resources for running these applications. Cloud service providers can well offer banks cheap block chain application computing power. One such example is the Bank of America which is in partnership with Microsoft Azure. The partnership is designed to establish a block chain-as-a-service proof-of-concept to be used in corporate treasury processing.

Banks can also get these types of services from IBM. Although services and products of block chain may still necessitate significant initial finances and time, the use of cheap computing power, operating costs will significantly decline. Integration between block chain products and services is one of the things banks will be mandated to do together with validating the safety and reliability of these applications to multiple regulatory bodies across various jurisdictions.

Realization of expected returns may take several years and among the reasons is:

High initial setup costs

Indirect benefits for instance: accurate reporting of compliance and high customer satisfaction
Despite the initial costs associated with blockchain, banks will devise means and ways to maneuver through blockchain challenges are lesser costs. The search for such means has already begun with various firms and banks commencing on dealing with these challenges.

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