By Richard Whomes, director sales engineering, Rocket Software

What does the technology mean for global banks & their customers?

 Blockchain is more than just a buzzword. Many banks and fintech organisations are already exploring the ways in which they can use the technology to improve consumer lending and retail payments, engaging it to share and update real-time transactional data across business divisions. Even the Bank of England has announced it will be adopting blockchain in an attempt to keep up with the fast-paced world of financial technology. And while other industries are getting in on the action – for example Spotify recently acquired Brooklyn-based blockchainstartupMediachain Labs to help build more secure, traceable transactional information about its music files –  financial institutions are still very much at the front of the line when it comes to using blockchain.

The big players are making blockchain a priority

The 2016 World Economic Forum in Davos, Switzerland was engulfed in talk of blockchain, eclipsing other pressing issues including financial crisis and regulatory reforms. Clearly, leaders from the world’s largest financial organisations were, and still are, strongly focused on the ability of the innovative technology to disrupt and change the banking landscape as we know it.

As a reflection of how seriously the industry is taking this, as of January 2017 there were 891 blockchain and bitcoin technology companies across 73 countries, which have collectively already received $1.9 billion in funding. What’s more, three of Ireland’s biggest banks have teamed up with Deloitte to develop a pilot blockchain programme in an attempt to improve the security and speed of payments made between domestic banks. IBM has also announced that it is investing heavily in the technology. With mainframes at the core of almost every global bank, the computing giant is launching its Blockchain Founder Accelerator programme for large enterprises, helping them tackle the technology, business and legal issues that come with establishing new blockchain networks.

Why banking is the bedrock of blockchain

To understand why blockchain has become one of the biggest talking points in the world of banking, we need to look at the mechanisms behind the technology. At its core, blockchain forms a distributed ledger of transactions, which can be updated in real time by a range of institutions. This does away with the need to rely on burdensome reconciliations between disparate systems to keep information up-to-date.

Banking is an industry that is inherently complex. Its processes are strongly regulated, and individual brands rely on multiple third parties and intermediaries to do business around the world. Banks also have risks that are not easily mitigated; they operate an enormous number of data entry points and are constantly battling to keep payment records secure, and out of the hands of cyber-criminals.

Blockchain represents a substantial opportunity for banks to respond to these challenges. This is especially important, as the emergence of challenger banks and fintech start-ups change the financial services game, introducing more agile, fast and cost-efficient ways of working. The technology also presents the perfect solution for combatting fraud. If a transaction within the ledger is tampered with, the chain is broken and the change becomes invalid. This means you can guarantee that any payment record is kept permanently secure and accurate each step of the way.

The significance of blockchain in the traditional banking sector is self-evident; Fortune predicts that by the end of 2017, 15% of banks will be using blockchain, with this figure growing to 66% in the next four years.

What are the drivers behind blockchain

According to Deloitte and EFMA, 37% of financial services firms in EMEA are exploring the applications of blockchain with the aim of developing new businesses and business models, or of launching start-ups in the sector. 20% are looking to the technology to streamline processes and cut costs, while 11% say they are dipping their toes into blockchain thanks to the pressure to remain competitive. Banks and other financial sector organisations are expecting blockchain technology to deliver real solutions for their business problems.

So, what does blockchain mean for consumers?

One of the main reasons why retail banks are beginning to pay attention to blockchain is that the technology holds the key to improving the customer experience. It can streamline and improve banking products, while also – on a broader scale – provide the basis for a complete restructure of how banks use data to offer customers new services. In practical terms this could mean anything from a new system to help identify bank users and fight fraud, to a cross-border payment platform that facilitates instant low-cost money transfers. With such significant opportunities on the horizon, now is the time for banking leaders to invest in blockchain to keep their business competitive.