Banks are under pressure to cut costs due to losing profitable business lines, increased regulations, and new competitors entering the market. Blockchain technology could help reduce costs significantly by allowing banks to share a single ledger for transactions instead of each maintaining their own. Several major banks are exploring implementing blockchain and the cost savings could be substantial, but regulatory issues and the technical challenges of transitioning existing systems means it will take time before blockchain's impact is realized at a large scale. While the potential is there, blockchain may not provide solutions that can be used in the near future by the actual market.

1. * Source: Banks and theBlockchain report –CoinDesk
If you are working in the financial industry should you get involved in Blockchain?
The answer…as usual…it depends.
To answerthisquestionfirstsome backgroundonthe financial industry.
Banksnow formore thena decade have beenrigorouslycuttingcost.Astheyhave lostprofitable
businessandincurringmore costdue to stricterregulationsandnew competitors.
No more currencytrade’sinEurolandwiththe introductionof the Euro,reducedcrossborder
transactionfeesdue toSEPA (Single EuropeanPaymentArea) andthe interestratesare nothelping
eitheratthe moment.The latestone tocome isthat you cannotinvestmoneyyougetdomestically
and investitoutside of the EU (ECB ring-fencingregulation).
On topof that there hasbeena lotof new regulationforbanks(likeBasel II&III) whichrequire the
banksto keepmore capital andexecute more activitiesthenbefore (Knowyourclient,Payment
Transactionfiltering,etc.).Thisdrivesthe costup.
You alsosee that several newplayersare enteringthe market.Yousee challengerbankslike for
example BUNQbank.(Youcan actuallyopena fullyoperational bank accountforfree,within5
minutessittingonyourcouch!) These companieswill increase the pressure onmarketpricingand
marginswill getsmaller.
So bankswill needtolookateverypossible optiontokeepcompetitive andone componentistoget
your costas lowas possible.
Blockchainisone of the possibilitiestoreduce cost. Obviouslythereare manymore,butBlockchain
technologycouldbe revolutionaryhereanddrive amassive costreduction.A veryshortdescription
on whatblockchaintechnology canbe found here.The ideabehindBlockchaintechnologyisthat
youare able to share a single source of data betweenpartiesthatinprinciple cannottrusteach
other.
Picture this.Insteadof everybankhavingtheirownledgerasof know you addthemall intoone
ledger.Transactionsfromone banktoanotherare justmovementsinone andthe same database.
You needjustone setof techiestokeepthisrunninganddevelopit. Forexample monitoringand
paymentfilteringsoftwarehasonlytobe developedonce.
Several banks(over30 forexample Deutsche,JPMorgan,ING,RBS,UBS) are exploringthisactively
and incollaboration withthe helpof R3CEV*.Thisand muchmore informationisavailableat
CoinDesk.
The questionishowquicklywill thisresultinsomethingthatwe canactuallyperceive large scale in
the real paymentsworld.Bankswouldhave tomake a biginvestmenttochange fromthe current
bespoke ledgertoa distributedone sizefitsall ledger.Thiswill take time.

2. * Source: Banks and theBlockchain report –CoinDesk
Nexttothat one what scale can youbestimplementthis?Inacountry, ina continent?The bigger
youthinkthe more differentregulationsyouhave totake intoaccount. A Blockchainledgersolution
for all banksinEurope wouldbe veryeffectivefromacost perspective.The questionishow would
regulatorsinforexample Switzerlandorsome of the easternEuropeancountrieslookatthis?Their
data wouldbe replicatedinseveral othercountries.
Obviouslyyoucouldstartwitha lessdifficultapplicationof the Blockchain.Forexamplestartwith
puttingthe paymentfilteringrulesinaBlockchain.Thiswouldbe mucheasiertoimplement,but
unfortunatelywill resultinfewersavings.
That is enoughbackgroundfornow.
So back to the original questionshouldyougetinvolvedinBlockchainif youare workinginthe
financial industry?
My opinion:
Yes,if you like thinkinganddevelopinglong-termstrategy
Yes,if you like totestcuttingedge technologyandinteractwithseveral otherFinancialInstitutions
No,if you like toworkon stuff thatwill be usedanytime soonby the actual market
Happy to hearyour thoughts!
CheersMarco
(marco.hauff@gmail.com)