Introduction
Given nowadays complex macroeconomic environment, as well as regulatory and investors’ pressures, banks are forced to seek new ways of lowering costs and increasing profitability. In such setting, technological innovations such as blockchain could become a lifeboat for banks.
Similar to many innovative technologies blockchain has been accepted by banks, entrepreneurs, technologists, scholars, regulatory authorities and many more with quite a portion of enthusiasm. Multiple analysts predict positive developments as a consequence of blockchain adoption, such as new revenue models, efficiency gains, cut of millions in costs, and significant lowering of risks industry-wide.
To some it might seem that agiotage around such projects is superfluous. So a reasonable question arises: what are the tangible business benefits and optimization opportunities offered by blockchain?
Deloitte Blockchain Institute and Deloitte Center for the Long View evaluate blockchain potential
In search for answers, Deloitte´s Blockchain Institute has joined forces with Deloitte´s Center for the Long View to conduct a thorough analysis and factual evaluation of blockchain’s potential to remove inefficiencies and introduce productivity gains resulting from the adoption of the technology.
We maintain that the enthusiasm designated to the disruptive technology by banks and financial services industry firms is justified. Although we do not predict that Blockchain will oust financial intermediaries as such or replace the existing system, we are convinced that its influence will dramatically reshape the entire industry, fostering a more open and universally accessible financial ecosystem.
Blockchain refers to a new type of digital database organization, allowing a wide group of participants to simultaneously access the public depository of information, which is chronologically updated, with unprecedented level of security and reliability. It can only be updated by consensus of majority of the participants in the network (e.g. by “proof of work” consensus). Moreover, once entered on blockchain, information can never be erased. Blockchain contains a secure and verifiable record of every single digital transaction ever made.
Increasing interest in Blockchain within the financial services industry
The interest in Blockchain continues to rise exponentially, especially within the financial services industry: Re-establishing the concept of trust, blockchain enables direct P2P transactions. Unlike traditional transactions, which heavily rely on central counterparties (i.e. banks) for clearing and storing information, blockchain transactions are managed by a network of nodes – which translates into quicker settlement times, fewer redundant intermediaries and ultimately less costs.
Potential of blockchain in data reconciliation
Furthermore, blockchain has the potential to replace the multitude of consecutive models of data reconciliation, by providing a distributed database as a single source of truth. Today data reconciliation lies at heart of business models in enterprises not only within but also beyond financial services industry.
Each company independently maintains actuality of data in its systems, so in a business transaction numerous business processes flow slowly and inefficiently due to the need of transacting parties to reach an agreement on the congruity of records. Offering a more efficient and holistic approach, where automatic reconciliation of digital events is one of the core characteristics of the technology, blockchain represents a disruptive and innovative solution to reconciliation.
Finally, blockchain would not only allow banks to significantly reduce the present levels of complexity rested in processes through abandoning redundant elements of current infrastructure, but also revolutionize the roles of banks as well as roles of end users within the financial system.
In order to turn expectations into reality, banks must reexamine their vision and strategies, their role in a newly shaped landscape with respect to blockchain innovations and emerging competitors, their value proposition, new ways of user attraction and retention as well as organization and security concerns.
Due to their profound understanding of end users' needs, financial institutions are well positioned to embrace the opportunities of blockchain, building upon its new transactional paradigm and its cost saving potential. But they need to act swiftly. An alluring perspective is opening up in front of the banks, receiving a lot of attention, innovations and investments. Are banks ready to grasp the momentum?
How Deloitte can support
Deloitte can help assessing blockchain’s potential impacts on the business lines of financial institutions and define strategic decisions of where to play and how to win with a well proven user-centric workshop.
