Blockchain – the future of banking?
Blockchain technology has the potential to permanently change the financial industry: Numerous business models could emerge, while many others will become redundant. But what does this development mean for us as a bank? And how will our customers’ requirements change? We have investigated whether and how blockchain can be used to process complex transactions in the future.
Increased efficiency and data security thanks to decentralization
A blockchain is a decentralized database structure. In it, transactions are not recorded centrally on one computer, but are stored and updated on many different computers – known as nodes. Therefore, a blockchain does not need to be managed centrally. Once transactions are stored in the blockchain, it is extremely difficult to remove them. Manipulation is virtually impossible. At the same time, transparency is high because almost all transactions can be tracked. A blockchain thus ensures high data security and speed in transactions.
Today, the blockchain is primarily the system behind cryptocurrencies. In the future, however, it could be used to process all types of transactions. This changes the way we do business in the future, because the blockchain makes it possible to replace the functions that currently still require personal contact with a bank or a lawyer. Transactions can thus become much faster and cheaper.
The future has already begun
There is a lot of interest in using blockchains. Payment transactions and securities trading can thus be made faster, more secure and, above all, more cost-efficient. But it is still unclear whether significant amounts of data and transactions can even be stored and distributed in this way. The business processes along various securities transactions would have to be completely restructured and realigned. Not every company is therefore likely to benefit from blockchain.
- In addition, blockchain is based on an open operating system.
- However, we as a bank guarantee our customers the confidentiality of the data. So we have to ensure that unauthorized access by third parties is protected with Blockchain as well.
- All of this requires further development. But the potential is enormous.
- Blockchain can make transactions more secure and cheaper. We are working to make these possibilities available to you in the future.
How blockchain technology can be put to good use
When an Internet currency called Bitcoin appeared a few years ago, the virtual money was still eyed very skeptically. But the process behind it, the blockchain, has the potential to completely change the business and banking world. We show you how tomorrow’s technology can be put to good use.
A wide range of possible applications
Blockchains can revolutionize the banking business in the foreseeable future. Market-ready applications for commercial use in banking operations may not be found and implemented as quickly as initially hoped, but work is currently underway on possible ways to integrate blockchain technology into day-to-day business in the long term.
We started early to explore the potential of blockchain technology: starting with international payments and identification, through the eID process, to account reconciliation, clearing and settlement.
But we also see opportunities in automated contracts, so-called smart contracts. As part of the R3 consortium, we recently developed two pioneering prototypes for smart contracts to process foreign currency receivables and letter of credit loans.
Smart contracts – faster, cheaper, easier
These automated transactions are cheaper, faster and, most importantly, simpler. Not only because they eliminate the need for manual handoffs in financial transactions, but because they minimize negotiations. But the potential of smart contracts is by no means limited to traditional trade finance. For example, escrow accounts can also benefit from the new technology in the long term.
So the real question is not whether blockchain technology will find practical applications in the financial industry, but when and how we can use it for our customers.
Collaboration is key
The benefits of blockchain technology can only be realized through standardization and mass adoption. However, this requires greater collaboration between financial institutions through forums such as the R3 Consortium to ensure that the multitude of blockchains currently being developed can interact with each other.
The more banks work with other industries on mainstream blockchain solutions, the faster this technology will eventually catch on.
Success just a matter of time
CFOs and treasurers are particularly interested in quick insights into business processes as well as process optimization. For them, the technology is likely to become particularly important in the next 12 to 24 months.
Blockchain technology will certainly not disappear as quickly as the “panaceas” of years past. As its advantages become ever more apparent, its breakthrough is only a matter of time.