There has been a lot written about blockchain over the past few years, but what is it exactly? More importantly, how will it impact your bank? In the previous nine blogs, I have never mentioned blockchain once. Why? Because I would have had to explain it if I referenced it.
Actually, the reason that I haven’t addressed it is because I don’t see it as a threat to retail banking today, not like the other fintech issues that I have addressed in previous blogs.
It will eventually impact your business, but for now blockchain is a backroom disruptor. Blockchain has the potential to make monetary transfers significantly more efficient, less costly and more secure. Blockchain will eliminate the middle man.
Large banks, money center banks, have enormous staff dedicated to money transfers, both domestic and international. Think of what occurs in wire transfers at your bank on a mega-scale. If these transfers could be made extremely efficient and, at the same time, extremely secure there would be tremendous savings. Some of these savings would eventually trickle down to community banks.
This is of prime interest to large banks. Bank of America, for example, has applied for several patents in the past 18 months using blockchain technology even before they could determine a commercial use for this technology. In reviewing Bank of America’s recent announcements, it appears that they are beginning to recognize the advantages of blockchain and have recently lined up several partnerships.
Eventually blockchain technology will trickle down to community banks if it proves to be as revolutionary as projected. And rather than trying to explain how it works, I suggest that you read the articles with links below.
One of these articles, “What is a Blockchain, and Why is it Growing in Popularity?,” provides a good summation of how blockchain works without getting too technical. This article contains one phrase that gave me a chuckle, “Financial services are based on mistrust.” I laughed when I read this, but it is true, isn’t it? Look at every process in your operation today with checks and balances, dual controls for everything, and the need to verify everything twice.
Banks can’t trust their customers. Regulators can’t trust banks. No one can trust anyone and it would be bad business to do so. But, what if technology could eliminate this mistrust? What if it created a more efficient transfer process that was less costly?
That’s the intrinsic value of blockchain. It almost sounds like something dreamed up on a commune in the late 1960s and then applied to commerce. It will take a few years to find out how much blockchain will impact banking transactions. In the meantime, follow banking’s industry leaders to see how innovative companies are incorporating blockchain into their business operations.
Bank of America is Going Big on BlockchainHSBC and Bank of America Merrill Lynch Use Hyperledger Project for Blockchain-Based Trade FinanceBlockchain Will Be Used by 15% of Big Banks by 2017What is a Blockchain, and Why is it Growing in Popularity?