Fintech is particularly used in the financial sector to create digital databases that cannot be shared/modified blockchain technology, also known as Distributed Ledger Technology (DLT).
Today, when banks are examined on a global scale, we see that almost all of them are working on blockchain technology. However, the purpose of banks and the methods of implementing these technologies vary.
Basically, banks are establishing various consortiums on a global and local scale, making investments in FinTech working on blockchain, partnering with FinTechs, or upsing blockchain-based solutions in themselves.
As with any new technology, the failure to regulate the market in blockchain is considered to be the biggest problem for banks. To avoid this, some major banks globally are piloting blockchain projects together with the regulatory authority.
There are fundamentally reasons why banks are so interested in blockchain technology. These are
1.Cost savings and efficiency
Blockchain-based systems can play a role in the automation of manual processes within the bank. In this way, they can achieve cost gains by preventing operational inefficiency.
Blockchain-based solutions can provide close to $20 billion in cost-saving annually in the industry, according to Santander’s FinTech 2.0 report.
2.To achieve competitive advantage through startups
Thanks to FinTechs developing blockchain-based solutions, banks offer their customers the process of sending international money for less, faster and more user-friendly interfaces.
3.Creating new business models
Banks are also resorting to blockchain technology to overcome their central bodies and old infrastructure.
The simplest example is that even today, when you want to transfer money 24/7, banks are facing a central bank or an intermediary institution. That’s why they’re developing new business models.
The chart below is from a 2016 study by EFMA. The 3 items I mentioned here constitute the majority of the reasons why financial institutions are turning to blockchain technology.
If you’d like to get a more up-to-date survey study, I suggest you look at page 21 of Deloitte’s 2018 report.
After we’ve explained what purpose they’re interested in this technology for, let’s re-focus on how they’re doing it.
Consortiums: There are 2 popular consortiums glob
ally.1.R3: Initially created only among banks, this consortium continues on its way by incorporating insurance and technology partners as of 2016.
At this point, in 2016, corda, the open source blockchain platform for the use of financial service providers, was launched
2.In addition to The Hyperledger Project: R3, Hyperledger solutions address various industries.
It is not limited to the financial sector. With over 250 members, it continues to spread in many different sectors.
Another way to make a difference in this field is to partner with Fintechs.
Like the 2 FinTech examples that Barclays has partnered with: Wave and Circle UBS, Goldman Sachs and Morgan Stanley, some banks prefer to develop blockchain-based solutions within them and produce patents in this area.
UBS’s most advanced project so far is “Utility Settlement Coin” (USC), a new form of digital currency on the distributed ledger. Clearmatics and BNY Mellon, a Fintech development for USC, played roles at Deutsche Bank and Santander.
We can’t end up with a lot of these kind of initiatives. There are many other examples, such as JPMorgan’s ups and downs of Ethereum-based Quorum, forming a consortium of over 70 banks, and Goldman Sachs obtaining a patent under the name SETLcoin.
The lesson here is that as time goes on, there will be many different use-cases on blockchain technology.
Blockchain, which has been virtually paired with cryptocurrency since 2009, now continues to spread in many areas with hundreds of different examples.
Especially in the financial sector, companies are building central teams and being involved in consortiums in this area to keep a close eye on technology and avoid competition.