Banking on blockchain for increased trust

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In my 20 years as a banker and working with bankers, I’ve lived by the maxim that trust is like an eraser. It gets smaller with every error.

That’s why I read with interest the 2016 Edelman Trust Barometer, in which the financial services industry scored only 51 percent, the lowest of eight industries in the survey. There may be any number of factors that affect trust, including residue of the global financial crisis, poor customer experiences, rising fees, or a bevy of other possibilities.

The need for renewed trust is one of the reasons for the rapidly-growing interest in Blockchain technology – secure, immutable, transparent and scalable. Blockchain is a powerful tool for reestablishing trust across several domains of financial services.

Issuance of digital assets: Assets that once were only transferred as paper documents are routinely issued digitally today. Deeds, titles, securities, even cash can be negotiable digital assets on a blockchain. For example, IBM worked with Northern Trust on a production private equity blockchain solution for transferring ownership stakes that it manages, serviced and audited throughout the investment lifecycle. It provides the one and only version of the truth to all participants with secure access to the blockchain. One of the hallmarks of blockchain is that once records are created they cannot be altered.

Settlement of trading: It’s in everyone’s interest to speed the time between transaction and payment. That’s why the settlement of securities in the U.S. recently was reduced from T-3 to T-2, catching up to a change made in Europe three years ago. But this likely is just an interim step. It’s hard to go a day without reading a news article or press release that doesn’t talk about how blockchain will drive settlement time down to T-1 or even T-0. At T-0 (or maybe even sooner) blockchain can help eliminate the need for inter-bank netting agreements, as “promises to pay” can be replaced with actual payments.

Cross-border payments: Global payments industry revenues exceed $2 trillion annually, and comprise as much as 38 percent of global banking revenue. Payments are the backbone of global commerce, but cross-border payment processing is still laborious. For decades, reconciling cross-border payments was a highly-manual, paper intensive undertaking. Blockchain makes this process more transparent, more digital and more automated.

In all these domains, the goal is to reduce friction – the time, cost and number of intermediaries involved in a transaction – and to accelerate the velocity of transaction settlement. Reducing friction offers another benefit – both for banks and for society. Lower friction holds the potential to help address the issue of financial inclusion, and offers the promise of adding more than 1 billion digitally-connected consumers in emerging markets to the global financial system.

The only question: who will seize this opportunity? Will it be a traditional bank or a digital start up? If the potential profitability from two billion adults isn’t sufficient motivation, the societal benefit should be. The World Bank considers financial inclusion “a key enabler to reduce extreme poverty and boost shared prosperity.”

Other blockchain benefits

Blockchain’s benefits go well beyond the three domains described above. It can provide economies of scale, giving smaller firms similar advantages to larger ones. It lessens the requirement for sizable administrative staffs to pour through copious documents to reconcile massive, complicated transactions.

This technology also has broad application across undertakings such as real estate, food tracking, voting and reservations to name just a few, increasing the opportunity for banks and other financial services firms to form a broad blockchain ecosystem.

At Sibos 2017 in Toronto, IBM will have experts available to talk about blockchain’s benefits and risks, and how to engage with blockchain quickly and securely. We also can discuss opportunities to collaborate and engage in each other’s blockchain ecosystem.

To learn more about the latest in blockchain, I hope you’ll meet with us at Sibos 2017. To schedule a meeting, please contact us at or contact your IBM client representative. In addition, I’ll be speaking on “Cross-border transactions to the power of blockchain” at a Sibos Community Session on Monday, October 16 from 15:30 – 16:30. And please visit IBM’s Stand at Sibos located in the Metro Toronto Convention Center, Stand E08.

For more information on blockchain, we hope you’ll meet with us in Toronto at Sibos 2017. To schedule a meeting, please go to Visit IBM’s Stand # E08 at Sibos located in the Metro Toronto Convention Center.

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