Threat of ‘Substantial Disruption’ Sees Banks Adopting Blockchain in 2017

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September 28, 2016

According to an IBM survey that gathered insights from 200 global banks, 15% of those banks could be running blockchain solutions as early as 2017.

While 2016 is the year that has – already – seen blockchain prototypes tested and trialed, 2017 will be the year banks start putting blockchain solutions into implementation, according to a new IBM study.

“Hurtling” Toward Blockchain

Released today, the study, “Leading the Pack in Blockchain Banking: Trailblazers Set the Pace”, conducted by IBM Institute for Business Value, summed up the interest in blockchain among the 200 banks it surveyed, stating:

Our survey of commercial and retail banks reveals that the industry is hurtling toward blockchain adoption faster than many expected.

While commercial applications are currently few in number today, the IBM survey revealed that a full 15% of the surveyed banks see commercial blockchain solutions “at scale.”

Pinning these early adopters as the ‘trailblazers’, IBM’s research reveals that these banks are primarily made up of large institutions with over a hundred thousand employees, followed by medium-sized banks. First-movers will also have significant advantages over the chasing rest in having the ability to influence and determine standards and business practices which others will follow.

The report added:

Defying expectations, these larger banks are proving they have the agility to move fast in the face of change.

Blockchain Anticipated to Disrupt Core Banking

The reason for big banks hurtling toward blockchain technology within a year? Core disruption of the industry’s core banking offerings, the survey revealed. Lending and payments, which is the heartbeat of the current banking setup are under threat. Lending and payments are among the five of nine core banking offerings that see a “wall of disruption” heading toward them, according to the big banks.

Image courtesy: IBM Institute for Business Value

Elaborating on those early-mover advantages, Likhit Wagle, Global Industry General Manager at IBM Banking and Financial Markets stated:

To start, first movers are setting business standards and creating new models that will be used by future adopters of distributed ledger technology. We’re also finding that these early adopters are better able to anticipate disruption, fighting off new competitors along the way.

The following pack of banks will push in the wave of mass adoption, which will see blockchain adoption among banks to raise from 15% in 2017 to 66% by end of 2018. The remaining 34% of surveyed banks show that blockchain adoption will occur and ultimately envelop the their banking offerings by 2020.

Entirely New Business Models

The survey also sought the promises of blockchain technology to transform the financial industry, beyond its potential to modernize existing systems. The leading pack of adopters pointed to three areas where distributed ledger models will have a definitive impact. Namely, trade finance, corporate lending and reference data.

Notoriously complicated in its paperwork, manual processes and the number of involved parties, all surveyed banks unilaterally point to the innovation disrupting and enhancing trade finance. Industry endeavors like Microsoft’s recently announced partnership with Bank of America Merill Lynch are looking at blockchain solutions in the trade finance space.

Corporate Lending also carries a significant disconnect between borrowers and lenders in a lengthy process that routinely takes 20 days or more. Smart contracts on blockchains would help bring down settlement times dramatically, in an industry where small and medium enterprises (SMEs) see a $2 trillion credit gap from a lack of access to financing. The report also sees a direct and ‘radical’ peer-to-peer lending model that is already being tested by smaller firms and enterprises to threaten the established banking order.

Real-time data relays and synchronization, a fundamental facet of blockchain technology will also create new financial services. Furthermore, reference data among private blockchains governed by regulators and banks represents an opportunity to monetize reference data.

Images from iStock and Shutterstock.

Last modified (UTC): September 28, 2016 21:15

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