This is part 2 of our multi-part series on blockchain. Catch up on part 1 here.
A lot of industries and areas are being disrupted by blockchain technology. We took a deeper dive to see how the new technology specifically affects Asset Management & Investing.
Mo’ Money, Mo’ Margins
Blockchain’s effect on asset management and investing firms will be significant in terms of cost reduction and improved margins. According to Accenture, the new technology could save the banks up to $12B every year. This “provides a rare concrete estimate of blockchain’s potential savings.” Because blockchain data is essentially tamper-proof, it simplifies the supply chain process, removing the need for reconciliation and potentially making it easier for auditing. Additionally, by removing the ‘middle-man’, compliance costs could be reduced by up to 50%. Blockchain-based solutions can streamline processes and cut costs by greatly improving upon the traditionally fragmented data quality most bank database systems currently use.
Follow the Money
Because there is so much money to potentially be saved in the long-run, investment in blockchain technology is soaring. An estimated $75 million was invested in blockchain efforts specific to capital markets in 2015, up from $30 million in 2014. By 2019, that figure is expected to reach a whopping $400 million.
This list might be endless, but with what we know now, blockchain can be used to generate savings by:
- Streamlining management of portfolios and speed clearing and settlement of trades
- Eliminating redundant functions, reducing operational expenses and increasing opportunities to enhance the client experience
- Reconciling information across existing platforms or enabling new infrastructure for new markets and products
- Replacing legacy processes, tasks, and manual actions
- Creating a real-time system of record to replace inconsistent or out of sync data
- Disintermediate and create direct linkage between fund managers and distribution platforms
The bottom line for all of this is the huge potential of significant cost savings, faster transactions, and more accurate data and reporting.
As we stated in Part 1 of this series, there are many unknowns and it’s early days for this evolving technology. As we dig into the asset management use case, we see that the potential cost savings are significant. But, how we get there and what new solutions might drive us there are still unclear. Stay tuned as we share use case scenarios for payments and banking in our next post in this series.