19 MARS 2018

Blockchain and cryptocurrency: here are the banks that focus on hi-tech finance

From Ubs to Credit Suisse, from Santander to Unicredit, blockchain-based initiatives are multiplying: finance operations become more transparent and effective, costs are reduced.

Not only bitcoin: blockchain, the technology behind the well-known (and sometimes disputed) cryptocurrency, isn’t useful just to create virtual coins and shouldn’t be associated to negative experiences, such as fluctuation in value, speculations or illegal uses. On the contrary, blockchain is a technology for “strengthening” computer operations and data processing exchanged between a variety of subjects by introducing a higher form of automation and guaranteeing higher integrity.

Blockchain technologies have the potential to transform both digital services and business models for multiple industries, and in the case of banking and financial transactions, registering information blocks in a distributed way allows for greater efficiency and speed with higher levels of traceability and security.

The launch 2 months ago of a blockchain observatory, governed by the European Commission, shows that this technology is seen as a mature innovation engine worth empowering. Many European companies and start-ups, Brussels points out, are bringing solutions to the market based on blockchain and on what is known as “distributed ledger”: a technology allowing data to be processed and stored in a decentralized database where – once the rules have been established – users of the same network can share information and access and update permissions without a central hierarchy. Among these innovators there are a large number of financial institutions, stock exchanges and banks involved in piloting projects to develop solutions that increase the efficiency and transparency of operations and reduce operating costs.

A recent study by Accenture estimates, for example, that the automation introduced by the blockchain in the registration and management of Compensation and Guarantee transactions could bring up to 10 billion dollars in savings to big banking groups; the Australian Security Exchange marketplace and US post-trading financial services provider DTCC are among the organizations that already implement it.

Many banks welcome blockchain for potential applications within payment systems or for the creation of virtual money, a context in which both central and commercial banks are already working. Commercial institutions, such as UBS and Barclays, are designing a digital coin to be used in the form of token on financial markets, and to be convertible into cash on bank deposits.  

Applying blockchain to track and manage transactions and payments is also a focus of the R3 consortium, in which banking giants such as Deutsche Bank, HSBC, Natixis, Société Générale and Unicredit are participating. Additionally Swift, the leading provider of the global interbank network and financial messaging standards, is accelerating its involvement in the field, having announced in January the execution of a Memorandum of Understanding with seven SDAs (Centralized Securities Depositaries), and having published the positive outcome beginning of March of its PoC on DLT addressing nostro reconciliation issues in correspondent banking relationships.

Commercial banks, including Credit Suisse, also see opportunities in migrating syndicated loans to blockchain systems, which allow a more efficient life management of the loan. Banco Santander, as a last example, recently announced it will soon enable international mobile payments with Ripple, another player focused on the banking world that bases its technology on blockchain.

"Blockchain may seem like a complex technology, but the result is simplification", explains Dieter Schoene, Country Manager of the German subsidiary of TAS Group, the Italian headquartered multinational company with a thirty-year specialization in software solutions for e-money, payments and financial markets. "Enhancing automation in processes increases the security and the proper functioning of the system: let’s think about reducing the risk of fraud in invoicing, verifying the credential of customers and counterparties, or smart contracts. Banks can optimize manual processes for the settlement of securities transactions, or Trade Finance: applications of this technology can be found in all sectors where it’s necessary to validate a contract and a signature, simplifying steps and costs to the benefit of traceability. That’s why the initiatives of financial and payment institutions are multiplying, supported by technological partners who bring technical know-how and strategic advice on how to implement the change".

In this route towards the digital transformation, in fact, banks, stock exchanges, financial institutions and payment service providers aren’t working alone. They are experimenting with alliances both among themselves – to reach shared solutions – and with innovators who sustain them with the necessary technological skills, not always available in-house. This is what TAS Group does in Italy as well as internationally by adding its market knowledge and support for regulatory compliance to its modular and interoperable software solutions. The aim is to help customers understand the possibilities disclosed by blockchain and define a tailored business model.

"We follow a co-development process which involves the customer directly in order to best meet his needs for innovation and value creation. For instance, we develop flexible prototypes together, choosing quickly which ones work for the customer", continues Dieter Schoene. "We’re a digital transformation facilitator, not only for traditional players but also for new entrants, such as our Austrian Fintech Partner Cointed. Innovation creates opportunities for everyone, keeping in mind that everyone can access technology and adopt transformative business models".

There is no need for contraposition between banks and those start-ups that have emerged on the cryptocurrency market.

Among other initiatives, TAS Group has entered in collaboration with selected partners to offer withdrawals, payments and conversion of cryptocurrencies from ATMs, and to design physical and virtual prepaid cards that can ease purchasing with cryptocurrencies at points of sale, and integration with merchants’ loyalty programs.

"Digital evolution need not to be frightening: it’s a big opportunity", concludes Dieter Schoene. "Back in the 90s, the Internet revolution used to make people worry. Today, however, we know how many huge business cases there are, and indeed how much innovation and economic development this technology has been able to produce".

Discover more about our Partner Cointed