“What is common between a toothbrush and a mobile phone?” was the question asked at one of our offsite to test our team’s creativity. When I was asked recently how I see banks playing a pivotal role in blockchain based smart city initiatives, I for a moment felt like the toothbrush / mobile phone question. The winning answer to that question was creative and quirky – both are private and come with a ‘do not share’ warning! The question on banks, blockchain and smart city however surprisingly turned out to be a very connected phenomenon and made a lot more sense given some of the work we at Wipro were doing with our clients. In this blog, I wanted to capture some of those findings and provide my view on where this connected world is heading and what it means to the financial institutions. We will first look into what are all the initiatives underway by leading governments to make their cities ‘smart’. And then deep dive into my favourite topic on how blockchain helps those initiatives and finally closing with my other big favourite – financial services – can ride this wave and be ready for this future connected world.

What are Smart City Initiatives and how much is the world spending on it?

There are several ongoing Smart City initiatives around the world – most prominent ones being Smart Dubai , Estonia 360, Barcelona Smart City among others. These initiatives are aimed at providing a more seamless digital experience for the citizens. Governments are aiming at providing citizens with better health services (smart health), digital registries (for land, certificates, identity and like), smart energy ( meters and grids), smart mobility ( transportation, parking)  and better welfare management. These initiatives leverage the advancement in technologies like IoT (connected devices)  and blockchain, According to a survey by Statista, the world spending on smart city initiatives as of 2015 was 14 Bn. US Dollars and this is expected to raise to 35 Bn. US Dollars by 2020. There are close to 100 projects in Europe alone on smart city initiatives, closely followed by APAC and NA. The largest spend happens to be on land registry, smart energy and smart healthcare. Many governments are looking at smart renewable energy seriously and the number of homes with solar panels that become producers of smart and cleaner energy is steadily growing. All these initiatives are made possible because of leading edge technology advancement of connected homes, connected meters and peer to peer exchange of information.

What is the role of blockchain in Smart City Initiatives – what are the use cases?

Let us now explore what role does blockchain play in these initiatives and how is it helping governments embark on the journey. Blockchain allows for immutable records to be shared among all participants. This allows governments to create digital records of land registries, education certificates which is made available to all parties reducing time and cost for everyone involved. Some governments are also leveraging blockchain’s capabilities to create digital identity for citizens that don’t have any identity today and find it difficult to seek benefits and welfare ( ID2020 Alliance). Similarly, energy giants are coming together to leverage blockchain’s potential to accelerate the transition to a decentralized and resilient energy system. Blockchain allows energy to be exchanged for tokens that can later be used to buy back energy when the needs of the producer exceeds what they produce. Another blockchain based smart city initiative is in the electric vehicle charging space ( encouraging more EV owners)  where the EV vehicle owner, the charging pole owners, the energy provider and regulators come onto a blockchain based system to create a seamless charging experience for the vehicle owners across various charging poles and using a token based charging mechanism. This can later be easily extended to an automatic car to charging pole communication using machine based wallets. These are only some examples of how governments, organizations and companies are unleashing the power of blockchain and IoT for smart city initiatives.

What role can a bank play in this new interconnected world?

But what does this all mean for banks and how can they play a role in the blockchain powered smart city initiatives, what opportunities does it offer the banks and how can banks be the leaders in riding this wave ? Here are some ways banks can start getting involved with these initiatives:

• Wallet Providers: Most of these smart initiatives that leverage a blockchain will need a licensed bank to convert the ‘tokens’ to fiat money and vice versa. Otherwise these tokens created in a particular business, say the renewable prosumer based energy, can only be used to buy back energy. What if a producer always ends up with excess energy? Banks should look to start offering services that can convert tokens to currencies and vice versa. For this they will need to start working with energy giants in creating this mechanism. They could charge a small fee of course per transaction.
• Machine Economy: With the number of connected things constantly increasing, there will be need for cars and homes to have bank accounts. Cars would in the future be able to make a decision on when they need re-charging and will be able to communicate to a nearby charging pole and get itself charged and pay for it without human intervention.  Smart homes will be able to call for maintenance services and pay for them as well. So a bank that is able to look ahead and provide customers with linked machine accounts would be a leader in riding this innovation.
• Identity and KYC: Banks should join efforts with governments on digital identity projects to be able to leverage this for their KYC process. This may even lead to reduction in costs on KYC and other related compliance checks. Banks could even contribute to this process using years of data and experience in the space. They could even create a service that governments can buy into to speed up the smart identity process.
• Financing: Smart initiatives need funding just like any other initiatives. Since blockchain offers traceability, new modes of funding can be enabled that can be a lot faster and secure. Banks should focus on creating new products for financing these projects which are unlike traditional projects. Smarter funding and payment options by joining the blockchain initiative will allow for newer streams of revenue.
• Welfare Disbursement: Banks continue to struggle with reputational issue with the common public. Joining the government initiatives targeted at smart welfare disbursement will go a long way in helping to regain public trust and also add to corporate social responsibility objectives.

These are only some ways banks can play a role in the blockchain based smart city initiative – from creating new revenue streams to saving costs to improving reputation. This blog also has revealed that the blockchain initiatives across industries – government, energy, financial services all need to come together to make these efficient and relevant, which takes me back to my last blog which calls for interoperability among these initiatives.