Blockchain’s Impact on the Finance Industry, Part 3

This is part 3 of our multi-part series on the blockchain. In parts 1 and 2 we talked about the specific effects of blockchain and cryptocurrency on the finance industry as well as how it will impact asset management and investing. Today we are diving into payments and banking.

You Get a Currency and You Get a Currency

While many banks are skeptical of bitcoin, none are skeptical of blockchain. But the marriage of the two is where it gets dicey. Because while central banks are looking into issuing digital currency, the biggest banks think the technology isn’t evolved enough to handle the world’s biggest payment systems.

Case in point: while Bank of America won’t allow their customers to trade bitcoin futures, the company itself has received at least 43 patents for Blockchain, the most of any other payment firm. Why? Because the slow processing of cross-border payments is one of the areas most commonly identified as ripe for blockchain-based innovation. And everyone wants to jump on the bandwagon.

“…in a world where you can stream video from the space station, but you can’t move your own money from point A to point B…how do we take advantage of technology available today to dramatically accelerate the nature of how transactions and payments happen?” – Brad Garlinghouse, CEO, Ripple

Right now capital is sitting in pre-funded accounts all around the world. When you decide to work with someone, you transfer your currency and they transfer theirs. But what if you didn’t have to pre-fund those accounts? Ripple wants to disrupt this model with sub second cross-border payments and automated best pricing from its network. Since Ripple payments are nearly instant, their model removes credit and liquidity risk from the process, thus lowering bank (and societal) costs considerably.

Ripple sees an opportunity to make payments faster and cheaper by connecting different ledgers and thereby creating a universal protocol and solving the multi-trillion liquidity problem. And they’re not alone.

Feeling the Need for Speed

Payment providers getting into the blockchain space have the distinct benefit of doing the fund transfers so they can funnel users’ funds into purchases of the underlying currencies or to accounts at exchanges. This allows for significantly lower settlement time and lower costs for both providers, thereby lowering costs for the end user.

Mastercard is testing the technology to facilitate payments between businesses.

But, it’s not just about sending cryptocurrency payments. IBM is looking into platforms that allow blockchain payments of mainstream fiat currencies instantly, cutting down on the time it takes to set up and send wire transfers. And making it cheaper.

And IBM has started numerous pilots in this area. From their collaboration with startup Stellar, which uses blockchain technology to connect flat currencies to enable instant international transfers, to New Zealand-based payments company, KlickEx, they are hard on the heels of several blockchain endeavors.

What’s Next for Blockchain?
As we wrap up this series, one thing is for sure, Blockchain is going to have a huge impact on Fintech and that impact will likely change almost daily as the technology develops and gets more widely adopted. According to Goldman Sachs research, companies that switch to digital could see $57B in net cost savings globally each year. In other words, the financial profit and time-saving applications are enough of a game-changer to make all this fluctuation in the space worth it in the long run.

Blockchain’s Impact on the Finance Industry, Part 2

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.

“The technology represents a potentially important breakthrough at a time when leading investment banks are looking at myriad ways to rebuild their returns on equity.” Chris Blain, Partner,  McLagan

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:

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.

Blockchain’s Impact on the Finance Industry, Part 1

This is part 1 of our multi-part series on Digital Assets and Blockchain, and what these could mean for the finance industry.

It seems like you can’t take one step these days without bumping into someone talking about cryptocurrencies. But for all this talk, the average investor probably doesn’t understand the underlying tech behind it — which is the real value add — the blockchain.

Developed in 2009 as the technology behind cryptocurrency, blockchain is a vast, globally distributed ledger capable of recording anything of value. Assets can be moved and stored privately, securely and from peer to peer. For the first time in human history, two or more parties can forge agreements and make transactions without relying on intermediaries to verify their identities or perform the critical business tasks that are foundational to all forms of commerce.

So let’s ask ourselves, How will blockchain affect the finance industry? There are a lot of unknowns, both potentially negative and positive. Let’s start with the potential positives:

Fees

It’s estimated that consumers could save up to $16 billion in banking and insurance fees each year through blockchain-based applications. By reducing transaction costs and essentially cutting out the middleman, blockchain offers an efficiency that cuts through costly financial ‘red tape’. And with shorter clearance or settlement times, reduced back office and compliance costs, companies could also see similar savings as well as risk reduction.

Streamlined Processes

A large majority of financial securities exist today purely electronically and are managed centrally through trusted third parties, incurring considerable operating costs. Blockchain supports the validation and execution of transactions in near real time. This means it can be used to:

  • Remove friction from the client onboarding process
  • Streamline management of model portfolios
  • Speed the clearing and settlement of trades
  • Ease compliance burdens

Data Integrity of the Audit Trail

Like most forms of technology, blockchain in accounting and audit greatly reduces the potential for errors when reconciling complex and disparate information from multiple sources. One reason is you can’t alter a record once it’s been committed under blockchain, even if you own the record. And because every transaction is recorded and verified, the integrity of the transaction is guaranteed. Plus with the advent of smart contracts, trade is enabled with fewer barriers and protected via the digital wallets on either side of the transaction.

But with any new technology there are always potential negatives or concerns:

Adoption

In June, IBM was selected to build a blockchain-based international trading system for seven of the world’s biggest banks, including Deutsche Bank, HSBC, KBC, Natixis, Rabobank, Societe Generale and Unicredit. And, Microsoft and Bank of America Merrill Lynch have teamed up on a new project using blockchain in trade finance, aiming to create a framework that could eventually be sold to other businesses. However, just because companies want to start implementing it, doesn’t mean your customers are going to jump on board, especially when it concerns their money.

Regulation

While Blockchain is tantalizing to FinTech, with nearly all blockchain-based proofs of concept developed by banks having been undertaken in conjunction with fintech partners, new territory could mean the wild wild west when it comes to oversight.

“Blockchain and cryptocurrencies aren’t regulated as a technology generally speaking. It depends on the application. So, whatever they’re used for, it’ll fall under the appropriate regulator — and sometimes the inappropriate regulator.” – Marco Santori, Cooley

Scalability

Like any endeavor, how you scale could mean the difference between profit and bankruptcy. Blockchain networks still aren’t capable of handling the high transaction volumes that could rival that of large industries and financial institutions. Without the appropriate scaling solutions, transaction costs would be too high and the wait times too long for viable adoption. For example, Bitcoin blockchains can only achieve 3-4 transactions per second compared to 56,000 for Visa’s VisaNet. Plus, when you add to this the fact that more than half of the world’s big corporations are considering blockchain and 2/3 of them expect the technology to be integrated into their systems by the end of 2018, proper scaling becomes even more vital.

The one thing we can be certain of about blockchain is that we don’t know what impact this technology will have and how many industries it will affect. Even with all the excitement surrounding it and its entrance into the mainstream, it’s still in the early days. Smart investors and tech titans will tread lightly and keep a watchful eye on this continually and quickly evolving space.

Stay tuned for the next post in this series on what blockchain and cryptocurrencies mean specifically for asset management and investing vs. payments and banking.

Announcing: Digital currencies now supported via TradeIt through integration with Coinbase

We’re pleased to announce that we’ve connected our core product — Portfolio View — to Coinbase, a digital currency exchange with more than 10 million users and more than $50 billion in trading activity in digital currencies such as Bitcoin, Ethereum, and Litecoin.

“With our TradeIt partnership, Coinbase users will now have the ability to view their digital currency holdings on web portals such as Yahoo! Finance.  As digital currency trading volumes build and trading becomes more mainstream, partners like TradeIt and Yahoo help provide easy access to retail investors, anywhere and anytime.” said Sam Rosenblum, Director of Global Business Development at Coinbase.

TradeIt enables our partners – developers, publishers, social networks – to easily add digital currencies via integration with our SDK.  With this expanded support of digital currencies, Yahoo! Finance has gone live with our Portfolio View SDK.  Yahoo! Finance users will now be able to link to their Coinbase account and monitor their positions in Bitcoin, Ethereum, and Litecoin.

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TradeIt’s platform is designed to support your platform and your end users in their financial journey.  TradeIt supports equities, ETFs, options, FX and digital currencies.  Enabling our partners to quickly and easily integrate additional asset classes that end users are looking for drives our product roadmap.

“We are excited to be expanding our coverage of securities and adding digital currency support to our core products,” said Nathan Richardson, co-founder and CEO of TradeIt.  “Supporting our partners with easy to integrate solutions for their apps is key to our efforts in enabling developers and publishers to meet the needs of their end users.”