• Banks Go Big on Blockchain to Close 2015  

Banks Go Big on Blockchain to Close 2015

In our recent round-up of headlines from SWIFT’s Sibos 2015 conference, we highlighted the perception that the term “blockchain” graduated from being an abstract phrase, possibly relating to toilet trouble in 2014, to the biggest buzzword in banking.

The notion that usage of the word outweighed a true grasp of its meaning was encapsulated rather cheekily by a re-hash of a Dilbert comic strip, which suggests banks are jumping on the blockchain bandwagon without necessarily knowing where it is headed (or where it came from in the first place).


But they say money talks, and if recent investment by banks in exploring blockchain technology is anything to go by, they’re acutely aware of its potential.

The Financial Times reports that around $462 million in venture capital flooded into blockchain-related start-ups in the first nine months of 2015—doubling the level of investment over the same period last year. September also saw nine leading banks enter into a partnership with tech innovators R3 to examine blockchain technology. In less than a month, the number of banks affiliated with the initiative has risen to 25. The infographic below from CB Insights (which doesn’t include the R3 collaboration) offers a striking visual indicator of just how many financial services firms have invested in the space in the latter part of 2015.


Source: CB Insights

We’ve previously gone into detail about how the blockchain’s distributed ledger technology works, but a recent report by Santander summarized it in this way: “In contrast to today’s transaction networks, distributed ledgers eliminate the need for central authorities to certify ownership and clear transactions.”

What banks are betting on in such big numbers is the belief that this new type of network will allow for faster, cheaper, and more secure transactions. Santander’s report claims that the knock-on effects on embracing blockchain technology could “reduce banks’ infrastructure costs attributable to cross-border payments, securities trading, and regulatory compliance by $15-20 billion per annum by 2022.” It is, they say, “only a matter of time before distributed ledgers become a trusted alternative for managing large volumes of transactions.”

They are clearly not alone in their belief. HSBC joined those partnering with R3 recently, and Head of Markets, Niall Cameron, echoed Santander’s analysis: “Innovative, open-source developments like distributed ledger technology require expertise to deliver but have huge potential, offering banks and their clients the prospect of enhanced security, lower costs, and improved error reduction.”

Meanwhile, however, critics continue to suggest that separating blockchain technology from the Bitcoin cryptocurrency it was invented to validate is missing the point. Industry commentator Chris Skinner says, “the blockchain does not work without a native cryptocurrency,” while analyst Dug Campbell suggests the kind of private “permissioned blockchain” banks are interested in is better described as a “database on steroids.”

Many of the approximately 300 start-ups exploring blockchain tech for banking have been happy to concede in the past that “blockchain” is simply the best understood term for what they’re working on, and that the distributed ledgers used by banks will necessarily be different from the technology behind Bitcoin.

Certainly, the growing buzz and investment around blockchain-like technology in the financial services industry indicates that banks see it as perhaps the ultimate weapon in their bid to remain relevant in the face of digital disruption.

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