ShowHide categories

Blockchain: beneath the hype

Future banking
By Simon Raymer, Chief Information Officer

Clients are demanding ‘Blockchain’ but commercial banks need to deliver the value built on it, not just empty blurb.

Every time a new buzzword arrives, it is accompanied by a fair amount of misinformation and hyperbole alongside clients clamouring for information about what it means for them.

Blockchain is no exception. First talked of in relation to the shady dealings on the dark web as a way of hiding who was buying things they shouldn’t, it has since entered the mainstream. However, few are entirely sure of how it fits into their own day to day operations.

Commercial banks should be having conversations with their clients about Blockchain but their first duty is to educate. The problem with it is that conversations around it have been ‘consumerised’, it has become a ‘product’ and something clients expect to see featured somewhere in their portfolios.

Blockchain can deliver efficiencies
Instead, the discussion should be around what banks can deliver based on Blockchain. It has the potential to drive a huge amount of efficiency and customer satisfaction in future commercial banking, but it is not a client product per se.

A distributed online database, the Blockchain can be accessed by several users at a time, is constantly updated and is theoretically tamper proof. This protects the bank’s customers against unwarranted use of their data, potentially fraudulent transactions and gives a single source of truth in complex, multi-stage transactions.

What it also allows for is the creation of smart contracts which not only helps secure client data but has the potential to dramatically speed up banking processes.

Complex transaction automation 
Smart contracts are a form of automated decision tree. They can be created to suit any scenario needed and can be bespoke to client needs. With a series of ‘if this then that’ decision triggers, self-executing programmes can allow for the automation of quite complex transactions and validations that would have previously taken human operatives much, much longer to complete. It’s not hard to see how valuable this time saving can be for companies trying to create a lean supply chain in response to today’s highly demand-led market.

A challenge for banks is that Blockchain was initially created to disintermediate banks from the transactional process. The system has evolved since these first principles and such disintermediation is unlikely, primarily because the original Bitcoin Blockchain is not robust enough to deal with the demands of commercial finance.

However, the competitive threat remains. Blockchain is enabling new service providers to enter the financial space, providing digital, mobile-first finance solutions to clients that are based on added value platforms such as financial dashboarding, forecasting products or demand management.

Commercial banks will have to step up and create competing products built on a Blockchain framework to deliver compelling services to clients.

It will be in the creation of these products that banks will be able to communicate the benefits of a Blockchain-enabled bank. It is very much a ‘show, don’t tell’ proposition.

Providing automated decision-making on lines of commercial credit, enhanced visibility of transactions on a purpose-built platform as well as real-time, actionable and bespoke advice - this is how clients will understand they are being served the best that Blockchain has to offer.