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The global banking industry is changing as rapidly and decisively as it can keep up with the technologies. And one technology that is emerging fast is that of blockchains, which some believe will do for transactions what the internet did for information.

Commercial blockchain solutions are rapidly being adopted throughout banking and financial markets, dramatically faster than initially expected, according to two new IBM studies. The studies found that 15 percent of global banks and 14 percent of financial market institutions interviewed by IBM intend to implement full-scale, commercial blockchain solutions in 2017. The studies say that mass adoption isn’t that far behind with roughly 65 percent of banks expecting to have blockchain solutions in production in the next three years.

So, what is blockchain? 

IBM’s head of blockchain for Australia and New Zealand, Michael Aaron, says that blockchain is a protocol that comes from the world of mathematical algorithms. Essentially it is highly secure shared ledgers where participants write transactions in near real-time to an unbreakable chain that becomes a permanent record of an asset or transaction.

He says it is the ability to share a ledger and parties agree to lock that transaction down and it can’t be changed. Within a business network you can share the ledger which improves the process and flow between the participants.

It’s like a digital database that each person participating can work on and update. He sees it as protocol or standard to enable businesses to automate their business network.

Aaron explains that IBM, for instance, has a lot of suppliers and if there is a dispute over any link in the finance or supply chain, it could take up to 44 days to address. But with blockchain, each of the participants can see their records and the shared record (whether it be agreement around the terms and conditions of the sale, the type of sales tax, etc) and there
is no dispute. Resolution has gone from
44 days to one day.

In a nutshell, says Aaron, it’s reducing any friction within supply chains or business networks that might slow
things down. 

“Everyone is in agreement of what is in that shared ledger.”

In trade finance, there are many participants and mechanisms to enable trust such as letters of credit, bills of lading. Blockchain has the potential to reduce the number of mechanisms and change the role of some participants in the business network in how they enable trust.

It means players can trust each other directly because they are seeing the same information throughout the life cycle and that makes them more efficient.

At the end of the day there are four benefits:  

  • Reducing disputes, which reduces costs. 
  • Reduced risk as it can’t be tampered with. 
  • Closed shared record keeping increases trust within the business network.
  • It’s a ’tool’ to be able to reengineer practices within a business network.

Another benefit might be in the provenance of goods. Aaron said in China, where food safety is hugely important, Walmart is working with IBM with blockchain and the internet of things piloting the tracking of pork from the pig farm through to the slaughterhouse to Walmart. In South America it is being used in areas where the title to land has been unclear for decades and in New Zealand it could be used for food provenance too, in organic food or our highly sought after Manuka honey. 

The application of blockchain technology to trade finance is being investigated by a major Proof of Concept with banks, the Port Authority of Singapore and the Monetary Authority of Singapore.

In Japan, the Japanese Stock Exchange is looking at certain kinds of post trade settlement.

Aaron sees blockchain as being transformational in allowing business networks to increase their efficiency and bringing trust to a business network.

A media release on the banking studies, conducted by the IBM Institute for Business Value, says  more than 70 percent of banking “trailblazers” surveyed, or early adopters, are prioritising blockchain efforts in order to break down current barriers to creating new business models and reaching new markets. 

“These trailblazers are better positioned to defend themselves against competitors, including those untraditional disruptors like startup non-banks. For financial markets institutions, seven out of 10 trailblazers surveyed are focusing their blockchain efforts on four areas: clearing and settlement, wholesale payments, equity and debt issuance, and reference data.”

It also says that trailblazers expect the benefits from blockchain technology to impact several business areas, including reference data (83 percent), retail payments (80 percent) and consumer lending (79 percent). 

“When asked which blockchain-based new business models could emerge, 80 percent of banks surveyed identified trade finance, corporate lending and reference data as having the greatest potential.”

The release says that says outside of early adopters, banks feel there are many barriers to success when adopting blockchain. According to those surveyed, the top barriers to success include regulatory constraints (56 percent), immature technology (54 percent) and lack of clear return on investment (52 percent).

The IBM study, Leading the Pack in Blockchain Banking: Trailblazers Set the Pace (1) is based on a survey of 200 global banks. A second IBM study, Blockchain Rewires Financial Markets: Trailblazers Take the Lead (2), is based on a survey of 200 global financial markets institutions. 

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Cathy Parker

Experience of Governance and management corporate and private companies. Sectors include media, automotive, leasing and engineering. Experience in Business building via acquisition and organic growth and directing a business in a VUCA environment. Strong interest and knowledge in IT, digital industries, media, sales, technology and management. Regular writer in business and automotive area.


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