Over time, this emerging technology is expected to cut costs and reduce missteps in the financial world.
Don’t expect the buzz around blockchain to subside anytime soon. According to technology giant IBM, two-thirds of the world’s leading banks expect to be using the technology by 2020 — a greater than four-fold jump over 2017 levels.
For those wary of what that means for the broader business environment, James Hicks, Head of Treasury Services, EVP at Regions Bank, offers a brief perspective.
“Five years ago, when clients said they were moving their business information processing to the cloud, many information security contacts expressed concerns, as they were worried about the many potential risks,” Hicks says. “Today, if I tell them a client isn’t doing anything in the cloud, those same information security experts are baffled by the aversion to it.
“I see a very similar trajectory for blockchain. It’s going through an evolution, with different rates of maturation, depending on the industry, but fundamentally, this is where the exchange of monetary information is headed.”
An ever-growing record
A sum of its parts, blockchain consists of a chain, or collection, of blocks, or chunks of transaction data. It utilizes distributed ledger technology, which means that the entire blockchain is continuously shared across a network of computers instead of the traditional centralized approach of a handful of parties — at most — maintaining records.
“Nowadays, most everything we do has a single defining data point, so if, for example, your bank says your checking account balance is $55,000.26, you assume there’s just one place in the world that has that record,” Hicks says. “Within the distributed ledger system, the community owns the data, so there is a shared view that cannot be changed that the balance is $55,000.26. You’re not relying on one single owner of the data.”
Privacy is ensured at the individual transaction level, as all information is encrypted with what is essentially military grade security. Furthermore, the heightened transparency of all transactions within the “community that is part of the transaction, makes deceptive practices virtually impossible to pull off.
Finding footing in the financial space
While some industries will take more time to integrate blockchain technology into day-to-day processes, most companies will be increasingly benefit through financial services partner. adoption For example, Hicks sees the shared architecture being quickly beneficial in:
Account-to-account payments: When a person-to-person, person-to-company, or company-to-company transfer is entered on blockchain, it’s rapidly recorded with both parties’ banks, cutting processing time considerably.
Cross-border payments: Reducing the myriad of intermediaries, which currently clog up this process, should dramatically trim the cost of such transfers for companies and individuals alike.
Securities holdings: The distributed ledger provides an accessible record of stock and bond ownership, as well as fuller transparency into buyers and sellers of more sophisticated holdings such as syndicated loans and derivatives, which could help avert a repeat of the 2008 financial market meltdown.
To date, many have equated blockchain with bitcoin, the cryptocurrency that is incredibly volatile, including a sharp rise in value in 2017. Hicks affirms that bitcoin is an application of blockchain technology and he adds that current issues with blockchain will diminish as more institutions start using the technology, a view shared by many.
“I'm reasonably confident . . . that the blockchain will change a great deal of financial practice and exchange,” one-time U.S. Secretary of the Treasury Larry Summers said in a May 2016 speech.
As for Regions, Hicks said the company is exploring various ways that blockchain may benefit customers — especially in tandem with payment industry partners. However, most applications are still several years off and will require broad participation across the industry to fully deliver on its potential. Continue reading to learn more about technology’s increasing impact on corporate banking.
