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How could blockchain change treasury?

The majority of banks think that innovations such as blockchain will positively impact their business, according to a recent survey. But do corporate treasurers think the same?

A recent survey by FTI Consulting found that seven in every 10 financial institutions think that innovation will have a positive effect on their business. It's clear that the race is on among banks, stock exchanges, governments and all sorts of businesses to harness the latest technologies. The rush to innovate uses for blockchain among global banks is a case in point. Bank of America Merrill Lynch is one of the latest global banks to announce it is starting a blockchain-based pilot for trade finance transactions, while a consortium of 40 banks led by the startup R3 has trialled five difference blockchain products.

Blockchain has the potential to transform banking (even more so) into an 'eat or be eaten' market, as startups and smaller players hold significant power to come up with innovative uses for blockchain that could sideline some of the traditional roles of banks. Financial institutions are naturally keen to the be the first to develop the financial products and systems of the future.

“Blockchain is ultimately disruptive to the financial system”

However, Henner Schliebs, at SAP, writing in Financial Executives International, points out the disruptive potential of blockchain, which could have negative consequences for the banking industry: “The blockchain is ultimately disruptive to the financial system because it removes the need for trusted third parties to guarantee a transaction. By combining distributed architecture with powerful encryption, the block chain itself coordinates agreements among all the parties in a transaction — and does so in a way that’s highly resistant to interference.”

Power shift in the corporate-bank relationship

Of course, transaction banks rely on “the need for trusted third parties to guarantee a transaction” and they are happy to meet that demand. If blockchain sidelines that demand, we could see a very big hole in the banking business model and a power shift in the corporate-bank relationship.

Despite this, FTI Consulting's survey noted increased optimism of the positive effect of innovation among financial institutions with high awareness of blockchain technology. While just over a quarter of financial institutions (26 per cent) said they are knowledgeable about blockchain technology, more than 90 per cent of those believed that innovation would positively affect their business.

Blockchain in payments, trade, data management

There are other areas of corporate treasury that could be affected by blockchain. Schliebs makes the point that, although blockchain technology allows transactions in cryptocurrencies to be anonymous, anonymity does not have to be a feature of blockchain-based systems. The ownership and provenance of transactions can actually be embedded in the blockchain data, enabling verification. This has the potential to be used for mainstream payments, where blockchain could provide a robust and secure framework for verifying transactions. But that's not the only application. Blockchain can be used in trading of bonds and stocks and in verifying the authenticity of documents. Other uses could be the verifying of intellectual property and the sharing of large amounts of data.


CTMfile take: Just as global banks are rushing to develop uses for blockchain, so corporates should also keep a firm eye on how the technology could be applied innovatively for their own advantage.


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