Are Banks Ready to Embrace Blockchain Technology?
The traditional finance industry is often viewed as stodgy and mired in the past.
However, the rise of fintech is changing things. Banks are adopting changing trends in an effort to appeal to millennials. They are partnering with — and sometimes buying — fintech companies in an effort to absorb the technology.
It’s taken a few years, but banks appear almost ready to embrace blockchain technology. Banks in Japan and Delaware are running trials and there’s an interest in all the applications offered by the blockchain.
Last year, IBM predicted that 15% of big banks would be using blockchain technology by 2017, and it appears that plenty of banks are ready to jump on board.
Where are Banks Embracing Blockchain Technology?
Banks all over the world are looking into the applications for blockchain technology. Even here in the United States, banks are checking out the uses for blockchain in banking.
Earlier this year, India’s Institute for Development and Research in Banking Technology reported that its pilot project using a blockchain platform to settle trade transactions was a success, according to the Economic Times.
Now that the original pilot has been deemed a success, 15 of India’s largest banks are working on their own pilots. These banks are building a consortium to test an interbank blockchain platform. The idea is to allow for a shared ledger to let all banking records of transactions be updated simultaneously.
In current financial settlement, banks have to each keep a copy of the transactions and then reconcile them. With blockchain technology, the distributed ledger takes care of it all. Allowing all those involved to see up-to-date transactions at the same time. It streamlines the process and reduces errors.
In China, leading banks hope to use blockchain technology to fight fraud and bring Chinese document verification into the 21st Century, according to VentureBeat.
In the current system, Chinese banks are still using faxes, chop stamps, and paper to verify documents. It’s odd for such large banks, with huge amounts of capital, to still be using such outdated technology.
Now, instead of “updating” to computer technology that many banks in the world — including the United States — are using, China looks to skip over it and go straight to the blockchain.
It makes sense in a lot of ways. There’s no point in spending the money to update to current systems when the next thing is already arriving. Blockchain technology can allow for better verification of documents, streamline the process, save money, and fight fraud.
One of the big problems, especially with the old paper system, is that there are a lot of fake trade finance deals. The hope in China is that using blockchain will update the banking system and reduce the amount of fraud.
Recently, banks in Spain decided to join forces to create the first blockchain consortium in that country. According to the announcement from Cecabank, the wholesale institution heading up the effort, 33% of the Spanish banking sector will be involved.
Other Spanish banking powerhouses like Santander and BBVA have already been experimenting with blockchain technology. However, they have worked separately. With this new consortium, banks will be working together to develop applications for their own banks and for interbank transactions.
The consortium hopes to be ahead of the curve, making it possible for them to implement different processes and applications. Plus, they hope to get employees used to working with blockchain so that they are better able to serve customers.
It probably comes as a surprise to no one that Japan is looking to use blockchain technology. While banks in other countries are testing things out and using blockchain for record-keeping, Japan appears ready to embrace blockchain payments.
A consortium of banks in Japan are using Google-backed blockchain payment system Ripple to handle domestic and international payments, according to CNBC.
There are 47 members of this consortium, and the idea is to make sure that the distributed ledger allows for transaction settlement and record keeping quickly and easily.
It’s not even about using Bitcoin or other cryptocurrencies to complete transactions. It’s about recording and settling transactions almost instantaneously. There are estimates that using blockchain technology could reduce the cost of transactions by more than 50%.
In the United States, things have been a little bit quiet on the blockchain technology front. However, big banks are experimenting a bit.
Where the real news is, though, is the fact that big banks and financial players have been hurrying to patent blockchain technology, according to Bloomberg.
Even though the blockchain ledgers are often open source, that doesn’t stop the banks from patenting underlying technologies — and that’s just what some of the financial industry’s biggest players are doing.
Bloomberg reports that Bank of America, MasterCard, and Goldman Sachs have all been involved in patenting technologies related to blockchain.
They know it’s coming, and they want to be ready to profit from it in as many ways as possible. MasterCard has been developing different applications using blockchain technology and wants to make sure it protects those innovations.
Blockchain Technology and All Facets of Business
Basically, blockchain technology has the potential to be applicable in almost every facet of business.
While many people still associate the technology with Bitcoin and other cryptocurrencies, the reality is that it goes far beyond that limited scope. It’s possible to settle other transactions, including those in widely used currencies.
Plus, the blockchain allows for identity verification, which can help with hiring practices. It’s also possible to put together smart contracts and manage other aspects of non-financial and financial transactions.
Blockchain can even provide a quick and easy way to help you put together promotions and coupons in your own business.
There’s a lot going on there, and moving to a blockchain system can reduce costs and human error. While there will still be some human elements, and you can’t get rid of all mistakes, things can be more accurate with the help of the blockchain.
Now is the Time to Watch What’s Next
As a business owner, it’s a good idea to keep an eye on the blockchain. Look at your own business and figure out what you can do to make sure you don’t miss out.
One of the biggest advantages is that it can potentially reduce costs. Transaction costs go down with blockchain technology. And, if it makes sense, you could save even more by using cryptocurrencies. If you have customers that want to pay with cryptocurrencies, accepting them can mean cutting out payment processors and exchange rate worries.
You can also reduce fraud, and handle other transactions quickly and easily in your partnerships. There are even supply chain management applications that can help you better manage your inventory from warehouse to customer.
While there is no such thing as a total magic pill to solve all your business issues, the reality is that blockchain technology comes pretty close. There’s a lot that can be done, and as companies continue to innovate, we will see more applications.
So, while it might seem disappointing that the big, traditional industries are getting in on it, there is one advantage. At least it means plenty of money to flow into application development, as well as research and innovation.