Bitcoin, the world’s most successful cryptocurrency, has already provided ample evidence that the technology underpinning it, Blockchain, is a robust platform for financial transactions. It now appears that banks from all over the world were taking notes all this time. Morgan Stanley, HSBC, Societe Generale, Commerzbank, Barclays, Credit Suisse, UBS, Bank of America, Citigroup, Goldman Sachs, Deutsche Bank, and many other international banks are in various stages of adopting Blockchain for a wide range of banking applications.
It appears that financial institutions are taking a complete U-turn from calling Blockchain a risky, if not illegal, technology to a powerful alternative to the current technology solutions that are presently supporting the financial industry. What is driving their change of hearts?
Well, the banks have known for some time that the Blockchain technology can transform the way financial transactions are conducted at the moment. For instance, transactions made over Blockchain are instantaneous. They happen in real time. This is in complete contrast to the present international financial system, wherein the transactions often take days, if not weeks, to be executed. First the request for the execution of a transaction is submitted. Then the identity of the initiator and the identity of the account holder are verified. Finally, the transactions are formalized only after the verification. But, the identities of the account holders and initiators are not always available to the bank that is executing the transaction. So, getting in touch with the bank who have their identities can add more time to the transactions.
Blockchain maintains a distributed ledger. Thanks to this, identities can be verified and transactions formalized even without revealing the identities of the account holders. This is a huge milestone in the direction of preventing identity theft and hacking. So, Blockchain increases the transparency of transactions as well as provides a higher degree of security to the entire financial system.
The benefits of implementing Blockchain in the banking industry are plenty and growing. One estimate puts the cost savings accrued by banks in international payments at $15 to $20 billion. Consumers too, who have to rely on relatively expensive means of international money transfer mechanisms, such as Western Union, MoneyGram, and PayPal, will be able to transfer money at a fraction of the costs charged by these institutions.
Ultimately Blockchain is gearing up to challenge the established worldwide payment enablers like Visa and MasterCard. But, for that to happen, Blockchain should first show that it can grow networks that are big enough to substitute Visa and MasterCard, and that is not easy. Governments’ and central banks’ concerns around anonymity can keep major markets out of the Blockchain’s networks. Yet, there is a lot of hope that Blockchain is the future of banking, and that hope is not without basis.
Fujitsu, a Japanese Blockchain technology enabler, has already signed up banks that are part of the Japanese Bankers Association (JBA) to test its cloud-service platform that is built on Blockchain. Japanese banks are using the Fujitsu Blockchain platform to develop applications for making instantaneous, safe and secure transactions and are testing them. In Europe, UBS is leading the effort by employing the services of Clearmatics. Not to be left behind, IBM is pushing through a similar platform in Europe.
There are now clear indications that the first of the Blockchain powered financial systems could well be in place for public use in a matter of a few years.