Blockchain has been hailed worldwide as one of the most innovative technologies of the decade. It has allowed firms operating in markets such as financial services, which are increasingly becoming the favourite target of cyber-hackers, to safeguard consumer data and money. But how valuable is blockchain for financial services? Htet Taya explores new research, which sheds light on this issue.
Welcome to blockchain
A ‘blockchain’ is a technological ledger which keeps a record of data. However, a blockchain is distributed across thousands of devices across the world, instead of in one place. This makes blockchain a very safe means of storing information, as due to its distributed nature, blockchains are extremely difficult for hackers to access. This has made blockchain popular for digital currency transactions, such as those executed in bitcoin, as well as with sectors which rely heavily on security.
One such sector is financial services. In 2016, a poll of 500 financial services executives from 56 nations saw 60% name blockchain the most important innovation since the internet, due to its ability to shield consumer data. We recently gained more insight into the potential value blockchain holds for financial services globally. A report from consulting company McKinsey estimated that across the next three years, blockchain could help the global financial services industry save over US$110 billion in costs.
We have now gained additional clarity, into the impact of blockchain for financial services, thanks to consulting firm Corporate Insight. According to ATM Markets, a finance industry resource, the company has released its latest report, Blockchain Solutions and the Future of Finance. For this, they polled leaders in the blockchain sector, as well as representatives from 14 key finance organisations, to shed light on the major trends that are governing blockchain implementation in financial services.
Corporate Insight noted that financial institutions are benefiting from blockchain, but it is also presenting them with unique challenges. As an example, it is hard to fix an error with blockchain, when someone buys a large quantity of securities by accident, due to its immutability, but these issues are being increasingly addressed by providers. They also discovered that firms are finding uses for blockchain which are not related to finance, most notably by relying on it to bolster cyber security.
Investing in development
Commenting, Corporate Insight Analyst Jennifer Butler said: “In the past two years, financial services firms and technology providers have made significant strides in turning the hype around blockchain into reality… Financial services firms are investing in blockchain to assess its potential for reducing operational inefficiencies and increasing market transparency. While the near-term industry impact of blockchain will be evolutionary rather than revolutionary, we expect these investments to continue and for blockchain-driven change to occur incrementally over the next few years.”
We have seen this drive to promote blockchain innovation play out in various ways, over the past few years. One obvious example is tech giant IBM’s decision to open its’s first ‘Centre for Blockchain Innovation’ in Singapore. As a side note, Singapore is rapidly becoming Asia’s top financial centre, and is developing a thriving financial technology (fintech) scene, due to its favourable regulatory policy, which encourages experimentation with minimal burdens. This clearly attracted IBM to the city-state and in turn, it will use its centre to dream up innovative solutions for Singapore’s finance sector.
Htet Tayza’s commentary
It is important to illustrate the scope of the threat that cybercrime poses to financial services globally. Business news website Consultancy UK notes that in 2016, the cost of cyber-attacks on businesses globally came in at US$280 billion, with the number of firms affected rising from 6% to 21%. Crucially, the most seriously impacted sector when it comes to extortion attacks, where criminals use malicious software to steal value from companies, was financial services. Last year, 45.8% of financial services firms experienced extortion attacks, almost double that of the second highest ranking sector (healthcare, at 23.7%), showing the damage cyber-attacks can wreak on the global finance industry.
It is not surprising that blockchain could potentially save the worldwide financial services sector over US$110 billion in the next three years. It has the ability to somewhat shield financial institutions from monetarily devastating cyber-attacks, to which they are particularly prone. Therefore, blockchain holds incredible value to financial services. Yes, the technology can prove disruptive, but this pales when compared to blockchain’s ability to blunt cyber-attacks. The technology is only set to become more crucial, as the decade wears on and more consumers turn to convenient fintech, so blockchain’s value for financial services could increase exponentially as we move into a digitalised world.