Blockchain technology could reduce infrastructure costs for eight of the world’s 10 largest investment banks by an average of 30%, saving them billions of dollars every year, new research from Accenture and McLagan suggests.
Banks around the world are pouring resources into distributed ledger technology, betting on its potential to revolutionise their business models and make them huge savings.
Last week McKinsey claimed that blockchain will remove $110 billion in costs for the global financial services industry over the next three years.
Now analysis, based on real-world granular cost data from eight of the top 10 investment banks, from Accenture and operations benchmarking specialist McLagan shows just eight of the top 10 investment banks could see between $8 billion and $12 billion in annual savings.
Today, investment banks maintain their own independent databases of transactions, customer information and other reference data. To complete any transaction, banks need to reconcile and confirm their data with their counterparties and clients which is a complex, costly, and labour-intensive process that is prone to error.
Blockchain technologies promise to help banks move from maintaining a separate, fragmented database structure to a shared, distributed database that spans organisations, slashing reconciliation costs.
The Accenture analysis suggests that DLT could shrink finance reporting by 70% thanks to better data quality, transparency and internal controls. Compliance costs could drop by half at the product level and on a centralised basis due to the improved transparency and auditability of transactions.
Meanwhile, things like Know Your Customer and client-onboarding could bring 50% savings by establishing more-efficient processes to manage digital identities and by sharing a single source of client data securely across multiple banks.
Business operations such as trade support, middle office, clearance, settlement and investigations could all lower their operating costs by 50% by reducing or eliminating the need for reconciliation, confirmation and trade-break analysis.
David Treat, MD, financial services industry blockchain practice, Accenture, says: "Given the tremendous cost of data reconciliation — which is part of every aspect of the capital markets industry — it’s no surprise that we’ve seen a significant amount of investment in blockchain technology.
"But, as with any emerging technology, understanding what these investments might yield is a challenge. As we move into production implementations, bank executives will need a clear roadmap for how and where to rethink their strategies and redesign their operating models, which is why we undertook this unique study."