The world’s largest globally systemically Important Banks (G-SIBs) are swiftly integrating blockchain technology into their operations ahead of their smaller rivals according to data released by UBS.
The Swiss bank polled 82 individuals during Q1 of 2019 from banks that are either evaluating, piloting, or implementing blockchain. The most common use cases of blockchain are payments, trade finance, securities settlement as well as fraud detection and security.
Last month, Commerzbank and Deutsche Börse announced they had used distributed ledger technology (DLT) to execute a legally binding settlement of a repo transaction. In February, a report from IHS Markit suggested that blockchain technology could save investment firms US$12 billion in clearing and settlement fees.
Ahead in the race
JPMorgan, Bank of America, Citigroup and Wells Fargo have the largest technology budgets of the 175 banks surveyed by UBS. JPMorgan is the biggest spender, with a $11.4 billion technology budget for 2019. BoA is second at $10 billion, with Wells Fargo coming in at third with $9 billion, and Citigroup, with about $8 billion.
After the ‘big four’, the drop is steep, with US Bancorp next on a budget of around $2.5 billion, half of which is considered operating expenses.
BoA is also notable in having a total of 82 blockchain-related patents, compared to JPMorgan’s six, according to intellectual property law firm EnvisionIP. The earliest patents filed by BoA date back to 2014. They range from a blockchain powered ATM to a storage system for keys to cryptocurrency wallets.
“There is a clear bifurcation between the largest banks and everybody else on blockchain,” commented UBS analyst Saul Martinez. Thirty-eight per cent of respondents from banks with assets above US$100 billion are implementing blockchain strategies against only 6% of respondents from banks with assets below US$100 billion.
The largest banks are even further ahead, with 73% of survey participants from US$250 billion-plus asset banks indicating that they are implementing blockchain strategies. Eight out of ten survey respondents from US$500 billion-plus asset banks indicated that they are implementing blockchain strategies. Most banks with assets below $100 billion are not currently investing in blockchain.
Respondents from larger banks are also more likely to cite revenue growth as a key benefit of technology investment, indicate that they are implementing artificial intelligence (AI) and blockchain strategies, and believe it is important to be an innovator in digital banking.
Regulation could play a key part in levelling the playing field, as reflected in the US Commodity Futures Trading Commission’s (CFTC) study into whether large banks take undue advantage of a rule adopted this year to increase hedging flexibility for small and midsize banks.
CFTC chairman J. Christopher Giancarlo acknowledged colleagues’ concerns in providing for a staff study in three years. “I take seriously the concern about potential misuse of this provision in ways that are not intended,” he commented.
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