IBS Journal October 2017
37
With an increasing demand of digital payments, blockchain is receiving a lot of attention from both banks and start-ups. Blockchain appears to be a threat to banks, offering an entire payments ecosystem that could render banks redundant. However, banks are actually looking to leverage the benefits of blockchain to reduce costs, improve efficiency, and support cryptocurrency payments.
Many banks, either standalone or acting as part of a consortium, are working to explore use-cases for blockchain. The Bank of England recently unveiled its own cryptocurrency called RSCoin, which allows encryption and speeds up international payments at the same time, reducing their cost. On the other hand, some of the largest global banks have formed or joined consortiums such as R3, CLS, or Utility Settlement Coin (USC), where they can work together to develop industry standards for blockchain- based implementations as well as a unified platform with common services for the participants.
• More than 250 banks have announced initiatives in blockchain feasibility since 2015
• 15% banks are now preparing rollouts of full-scale products by 2017
Realising the potential of blockchain
The disruptive potential of blockchain has also induced many start-ups to dip their toes in the water. Owing to their specialised focus, many of the startups such as Ripple and B2Bpay, have rapidly gained capabilities and have shot to fame within the industry.
Many of these startups have gained strong clienteles, Ripple was selected by a consortium of 47 Japanese banks – representing 30% of the banking market in Japan – to implement a cloud-based payment system called RC Cloud. This system will enable the consortium members to make real-time money transfers both in and outside Japan at a significantly lower cost. According to Ripple, distributed ledger technology could potentially bring down transaction costs for retail remittances and corporate payments by 60% and 50% respectively.
Other start-ups form very good investment opportunities for banks and PE firms, and end up attracting massive amounts of funding and support, or getting acquired by large players in financial services. Notable examples include 21 Inc., which raised $121m in venture funding before even launching its product; and Bitnet, a bitcoin wallet startup, was acquired by Rakuten, a Japanese e-tailer, a year after it started accepting bitcoin as a payment method.
• Venture capital investments up from $230m in 2014 to $462m in 2015
• Blockchain has attracted $ 1.4bn in investments in 2016.
The role of Blockchain in financial transactions Outlook
The Bank Spending on blockchain is expected to cross over $300m by 2018. According to a joint study by Infosys and Let’s Talk Payments (LTP), over 80% of bankers surveyed expect to see commercial adoption of the technology by 2020, with nearly half of the financial institutions already investing or planning to invest during 2017. The top use-case expected to go to production was quoted as cross border payments.
In another study by IBM, 65% of banks are expected to begin production on blockchain solutions within the next three years. Early adopters expect the benefits from blockchain technology to impact several business areas, including reference data (83%), retail payments (80%) and consumer lending (79%).
While blockchain holds a lot of potential, its success will depend on collaboration between banks, regulators, and fintech companies. Banks need to continue to identify feasibility of more use-cases, test proof concepts, and plan for implementation while being aware of security implications. Governments must determine the regulatory frameworks and responsibilities for managing and implementing blockchain infrastructure. Fintech companies need to innovate for better integration and efficiency, and develop solutions conforming to regulatory requirements.
One key challenge in the global-scale adoption of blockchain is processing requirements. Very high volumes of payment transactions would require massive computing power, which may not be available to many, except some of the largest corporations.
Blockchain is expected to find its way into mainstream applications by 2020. If deployed on a large scale, blockchain is expected to result in savings of $12bn on switching to cryptocurrency and blockchain technology, for both banks and companies. Instant payments will become the norm, and will strengthen the global e-commerce initiatives by firms. This will help small businesses improve short-term liquidity, and provide large businesses visibility of their cash flows in the short term.
While it is hard to comment on the future of cryptocurrencies, and whether they would replace physical currencies, one thing is certain – Blockchain is here to stay.
www.ibsintelligence.com
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52
