The Impact Blockchain Can Bring upon Finance and Banking

What does it all mean for finance?

As a technology, “blockchain is nothing but a distributed database,” said Michael Gardner, Managing Director at BNY Mellon Innovation Center, as he started off a Hyperledger meetup in Silicon Valley.

Michael emphasized a couple of key elements in blockchain that would have significant uses in finance.

• Built-in facilities for encryption. Encryption facilities are useful for associating blockchain with cryptocurrencies.
• Data immutability. Data written in the blockchain cannot be changed. If it is modified, a signature is left behind pointing to what has changed.
• Privilege gradients. Permission levels can be set in the blockchain as to who can see transactions and up to how much of the transaction they can see.

How much can be saved?

Karen Hsu, Head of Growth at BlockCypher, followed Michael’s presentation with a question: how much money can be saved in finance and banking using blockchain?

$22 billion is the magic number, according to Karen. She mentioned that amount could be saved in five years’ time in collateral management, more efficient payments, securities trading, and regulatory compliance.

“$22 billion is what you can save with blockchain.” —Karen Hsu, Head of Growth, BlockCypher

Another $5 billion could be saved in AML and KYC compliance, explains Karen. This would be a result of reduced customer onboarding headcount, reduced false positives and the need for manual intervention, and reduced headcount in training and technology.

Finally, $300 million could be saved annually in leveraged loan trading. Blockchain and smart contracts would reduce settlement periods, balance sheet collateral requirements, headcount, and industry funding costs.

Starting with smart contracts

Michael Gardner discussed how blockchain technology won’t necessarily make current payment systems obsolete. “You can’t take existing payment systems that we have today and migrate that overnight. Every institution is working hard on understanding what blockchain means to their system,” he noted.

Instead of blockchain replacing existing payment systems, Michael pointed out that the technology would have a better role as a supplement—specifically, with smart contracts. In this case, you are “taking contracts through the automated transactions and processes of a blockchain.”

“Blockchain won’t blow away existing payment systems but will instead supplment them.”
—Michael Gardner, Managing Director, BNY Mellon

Smart contracts would have the potential to reduce costs in finance, as Michael explains, “a lot of the cost right now with legal processes related to financial transactions and so forth has the potential to be highly automated, virtually instantaneous, fool-proof, and tamper-proof through the capabilities of the blockchain.”

Want details? Watch the video!

Further reading

• The Royal Bank of Scotland Builds a Hyperledger Digital Wallet: the Lessons Learned
• Blockchain Adoption: Industry Requirements and the Role of Prototypes
• What Is the Future of Blockchain?
• Blockchain Bottlenecks in Finance, Healthcare, and Insurance

About the experts

Michael Gardner is the Managing Director and Head of Center at BNY Mellon Innovation Center—Silicon Valley. He has over two decades of software development and executive leadership experience in a variety of contexts. At the Innovation Center, Michael is building a world-class research and delivery team, focused on some of the world’s hardest and most interesting problems and data. Teams and research areas include big data, APIs, cryptocurrency, and blockchain. Michael strives to bring extraordinary changes to financial services.

Karen Hsu is the Head of Growth at BlockCypher. With over 20 years of experience in big data analytics, Fintech, and blockchain, Karen has co-authored four patents and worked in a variety of engineering, marketing, and sales roles to bring new products to market for banks and financial services institutions. She has also worked closely with standards organizations, such as SWIFT and ACORD.