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How blockchain will be used in financial services

Research by Finextra and Epam looks at some of the current projects using blockchain to improve cross-border transfers, trade transactions as well as data and customer identity management.

From hype to reality: Developing a pragmatic approach to blockchain in financial services explores how the financial industry’s approach to blockchain has evolved in recent months, noting that 2016 has been a year in which we have seen a measured approach to assessing the potential of blockchain technology and testing its applications in financial services.

The paper looks at how well industry participants are progressing in road testing the distributed ledger technology (DLT) and establishing its specific business applications within the financial industry.

Applications of DLT

While the research notes that there isn't yet a consensus on how blockchain will be best put to use within the financial industry, experts quoted in the report indicate that one of the most important applications of blockchain will be to lower the costs of data management, which underlies all financial transactions and services.

The main applications, according to ABN Amro's Arjan Van Os, quoted in the report, are:

  • trade finance,
  • clearing and settlement,
  • asset and transaction recording and
  • digital identity.

Blockchain in transaction banking

Some of this year's pilot projects using distributed ledger technology (DLT) within the trade finance and data management/identity spaces include:

  • The Hyperledger Project has had some success with trade finance transactions, carried out with Bank of America Merrill Lynch, HSBC and the Infocomm Development Authority of Singapore.
  • The R3 consortium has also carried out pilot trade finance transactions based on distributed ledger technology with several banks, including Barclays, BBVA, BNP Paribas, Commonwealth Bank of Australia, Danske, ING, Intesa Sanpaolo, Natixis, Nordea, Scotiabank, UBS, UniCredit, US Bank and Wells Fargo.
  • French bank Credit Mutuel Arkea recently completed a pilot of an operational authorised blockchain network to verify customer bona fides in compliance with Know Your Customer (KYC) requirements. The software used was part of the open-source Hyperledger Project. The bank now plans to federate the different silos of customer data across the bank to create a single ID data chain that can be used across all business processes.
  • Visa Europe is planning a pilot project that will explore the application of blockchain technology in domestic and cross-border funds transfers.
  • A consortium of 15 Japanese banks are to work with blockchain joint venture SBI Ripple Asia to build a new payments platform promising round-the- clock real-time settlement for cross-border and domestic funds transfers.

Some other important applications of DLT within the financial industry include:

  • improving and reducing costs within the remittance business, with the aim of ultimately enabling people to send money abroad at a greatly reduced fee; and
  • managing stockholders' accounts in the capital markets (research by the Japan Exchange group found that DLT has “the potential to transform capital market structure by encouraging new business development, improving operational efficiency and contributing to cost reduction”).

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This item appears in the following sections:
Fraud Prevention
ID Systems & Services in Fraud Prevention
Operations
Control & Compliance in Operations
Payments - Disbursements
International Payments
Urgent/Instant .Payments
Trade & FSC Management
Trade Finance

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