The blockchain has the potential to do much more than just support cryptocurrencies; in fact, Capgemini expects that the technology will “revolutionize the financial services sector… [by providing] unprecedented transaction security through cryptography.”
In a new report called ‘Blockchain: A Fundamental Shift for Financial Services Institutions,’ French multinational management consulting corporation Capgemini, looks at blockchain technology and explores how the technology can transform banks financial institutions.
“Beginning from a ‘standing start’ 7 years ago, we are now witnessing the first tentative steps of blockchain technology adoption quicken as interest widens and investment accelerates,” Capgemini said, indicating that startups, corporations and governments agencies have been pouring large amounts of money into the technology, “making it clear that blockchain will cause disruption to current business models in the financial services sector and beyond.”
“No financial services firm can afford to ignore blockchain technology any longer,” the firm argues.
For the financial services industry, distributed ledger technology has the potential to make existing processes more efficient, secure, transparent and inexpensive, and be “a major disruption.”
To be more precise, financial services institutions could benefit from distributed permissioned ledgers. Unlike permissionless ledgers, such as the Bitcoin blockchain, permissioned ledgers only allow those who are already recognized by the ledger to validate and process transactions.
Permissionless ledgers on the other hand, rely on anonymous participants to validate transactions. These participants do not need a previous relationship with the ledger.
In this sense, permissioned, distributed ledger systems make sense for banks which could leverage the technology to send cross-border payments as well as settle and clear derivatives more efficiently. Ripple Labs, Eris Industries, Hyperledger, and Clearmatics, are some of the numerous companies that offer permissioned distributed ledger systems.
In fact, all major banks and financial services firms are exploring the niche. Hyperledger was acquired earlier this year by Blythe Masters’ Digital Asset Holdings, while UBS has teamed up with Clearmatics to help develop the bank’s “settlement coin” proof-of-concept.
While blockchain technology brings potential for increased profitability, it can also create a period of great disruption and confusion in the financial services industry, Capgemini said.
“In this environment, it seems that some common assessment, collective thinking, and sharing of potential opportunities for – and impacts on – banks could be useful,” it said.
Capgemini advises:
“While some banks are independently analyzing the potential of blockchain technology, our current point of view is that a common understanding would help all banks develop blockchain solutions more quickly and efficiently.”
Last week, BNP Paribas, Wells Fargo, ING, MacQuarie and the Canadian Imperial Bank of Commerce, joined 25 other banks in the blockchain initiative, led by New York-based financial tech firm R3.
Led by IBM’s former executive architect of banking innovation, Richard Gendal Brown, R3 is a blockchain consortium that aims to draw up industry standards and protocols for using distributed ledgers technologies in finance and banking.
Banks collaborating in the initiative include Barclays, BBVA, Commonwealth Bank of Australia, Credit Suisse, JP Morgan, State Street, Royal Bank of Scotland and UBS.
Read the full report: https://www.capgemini.com/resource-file-access/resource/pdf/blockchain_2015_0.pdf
Image credit: Capgemini.
