How Banks Can Benefit from Blockchain!

Despite significant tech gains in banking over the past 20 years, middle-and back-office functions remain antiquated, slow and inefficient thanks to overly complex processes. The problem is especially acute in Capital Markets since financial transactions involve many counterparties, manual tasks, and third-party services.

Although improvements have been made in trade and post-trade processing, they have not kept pace with front-office advancements by any stretch of the imagination. Assets that trade electronically in the blink of an eye often take days to settle.

Blockchain is one such FinTech that has the potential to solve current problems in Capital Markets and in the process help save billions of dollars in back-office and settlement costs.

In a Blockchain-based distributed ledger environment, clearing and settlement can occur within seconds. Perhaps more important, Blockchain distributed ledgers can be optimized to clear and settle at different speeds depending on the market participant’s needs. However, integrating distributed ledger and Blockchain solutions into legacy bank infrastructure is not simple. Multiple points of integration and further developments are required to reach a production-ready state.

… So, how can Banks get started?

Organize to develop a proof of concept (PoC) and field a small PoC team to test the Blockchain ledger. Here’s how to get started:

1. First is to do some test & experimentation - find a relatively simple transaction the institution frequently performs, e.g. loans, mortgages, securities handling, money transfers etc., and try to recreate it with Blockchain. Avoid building Blockchain tools from scratch rather use ones that are available as open-source, e.g. Linux’s Hyperledger, Multichain, Openchain, and GitHub etc.; most come with core Blockchain code for setting up nodes and performing operational tasks like interacting with blocks. Developers can use a variety of languages, such as C++, JavaScript & Serpent (in case of Ethereum) that can enable hands-on experience with how transactions work in Blockchain
2. Bring in vendors - both startups and established players such as Microsoft and IBM, to build test applications. Bring several companies for discussions and pilots to learn about their biases and ideas
3. Test a complete service - after familiarity with how Blockchain works, create an existing banking service in Blockchain. For e.g. this can include a post-trade securities settlement service, a loan exchange, or money transfer service that the financial institution is familiar with. Ensure the team can work with data sets that can be cleanly reset to initial conditions and create an audit trail of transactions for compliance testing purposes. Document learnings and share with business and technical teams
4. Celebrate – Celebrate successes and in case of failures, celebrate even more! Importantly have fun in the process.

Selecting and focusing on the right priorities and sequence is important, and having a strategy and roadmap for both rapid test & experimentation is critical in what will continue to be a fast-changing FinTech space.

Does your Bank want to Rock & Roll in FinTech innovation? – Start now!

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