An Industry under Pressure

Over the last decade, every industry has been revolutionized by technology thanks to tsunami-like forces at work in the digital economy.  The effects of digitization have resulted in major changes to business models, pricing, and consumer consumption.

The banking industry is no exception. Although non-banks entered the market aggressively bringing cross-industry network competition, fintechs are a new breed of competitor that use technology to make financial services more efficient. While they pose threats to traditional banks, we also see much greater collaboration between banks and these financial technology firms.  Given the trends, banks must look beyond how they have traditionally operated to embrace the future of digitization.

What impact will digital have on payments?

This is where blockchain plays a role.  In simple terms, blockchain is a distributed ledger that maintains a complete and unedited record of all information related to a digital transaction. This ledger allows a network of computers to settle transactions almost instantly and securely. The result is a ledger that provides, what could be, the holy grail of data management.

Banks have historically been central repositories and exchanges. Blockchain breaks this apart, and this separation is particularly prevalent in the payments industry. Why? Because blockchain creates efficiencies in the length of time it takes to complete a payment, reducing waste and redundant processes.

For example, SAP recently collaborated with ATB Financial and fintech start-up Ripple to send the first international blockchain payment from Alberta, Canada to ReiseBank in Germany.  The bank used the SAP HANA Cloud Platform and the SAP Payment Engine application to take advantage of Ripple’s pioneering blockchain network. The $1000 CAD (€667 EUR) blockchain payment, which would typically have taken between two to six business days to process was completed in about 20 seconds. The proof of concept has since been enhanced, and we are able to complete the transactions in just ten seconds.  

Going beyond payments

Given the unique capabilities of blockchain, it is no surprise that financial organizations are actively exploring its use in a variety of potential applications. They can, for example, use it to enable faster processing time, gain greater insight into market moves, increase transparency and compliance, and substantially lower costs. According to a report co-authored by Santander, it’s estimated that blockchain technology could reduce banks' infrastructure costs alone by up to $20 billion a year.

There are broader applications of blockchain across other industries, as evidenced by the fact that investments and funding of blockchain-related start-ups had grown from US$298 million in 2014 to almost US$460 million. The potential exists to transform any transaction where speed, trusted and reconciled data, and secure handling of payments.

What’s the future of blockchain?

It may be too early to define how the financial services industry will leverage blockchain.  I see a lot of activity happening around blockchain that involves collaboration between central banks, technology providers, fintechs, and large global banks. At the wake of Britain’s decision to leave the EU, Mark Carney’s plan to leverage fintechs and blockchain is a prime example of how of financial technology could play a critical role in the industry.  

Although Mr. Carney’s plans are in their infancy, financial technology remains a hot topic for the industry.  I look forward to engaging with other experts at Sibos to exchange ideas relative to fintechs, blockchain and the future of the financial services industry.

If you’re interested in learning more about the ATB/SAP/Ripple blockchain story, be sure to attend our Open Theatre Presentation at Sibos on September 26 and visit us at www.sap.com/sibos.