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How Blockchain Is Driving Innovation In Financial Services

The past three years have seen an astonishing number of blockchain pilots introduced to explore the emerging technology’s potential impact in the banking industry. Of course, even during the most manic days of blockchain hype, it was always clear that only the most thoughtful projects would eventually make their way into production and demonstrate real value to banks and other financial services institutions.

Early enthusiasm for blockchain and the ensuing years of rapid development have now given the industry an opportunity to reflect on its early success, and to identify what precisely makes distributed ledger technologies not only viable, but valuable in such a wide and growing number of use cases.

IBM is behind more successful enterprise blockchain implementations than any other company, and we believe that to achieve the full potential of adoption, blockchain projects must continue to demonstrate utility and interoperability while working toward the emergence of genuine network effects. By itself, blockchain is just a technology.

Bring new transparency, simplicity and efficiency to every financial transaction

That said, by helping solve issues related to managing truth, trust and transparency of data, blockchain technology has leaped to the forefront of transformative change that is already providing a better way of doing business. It is already helping organizations save millions of dollars in intermediary fees and operational spending by validating data. Proven use cases have emerged. As these projects enter production, championed by single or multiple organizations, the blockchain network effect is only going to grow exponentially.

GMEX: Using blockchain to transform financial infrastructure

Take the example of GMEX, who [recently partnered][PR Embed] with IBM to use blockchain to enable near real time settlement of both traditional and digital assets. By creating infrastructure that supports both old and the new, exchanges and custodians alike are embracing the platform. That includes DAG Global, which now uses the technology to settle Bitcoin and Ethereum trades between the two leading cryptocurrency exchanges, Coinbase and Kraken.

Beyond utility, we’ve also seen the growing importance of network growth as pilots move into production, begin to scale and then encompass additional capabilities to drive even greater benefit from the network.

Lygon: How network growth is driving new blockchain use cases

One unique attribute of a distributed ledger, as opposed to a traditional database, is that a distributed ledger gets more valuable as it gets more participants. As the network grows and more kinds of data are shared, entirely new use cases become feasible.

Take the case of Lygon, a project based in Australia and headed by ANZ, Commonwealth Bank, IBM, Scentre Group and Westpac. While the network was initially started to simplify bank guarantees for commercial real estate, once this network was in place, it was only a small additional step to extend similar guarantees to other areas, for example working capital or procurement.

In a way, the ecosystem offers an opportunity to become an “appstore” to build apps uniquely valuable to the other individual participants. The legal and business framework of the platform makes convening on the platform viable, enabling a network effect.

The network effect, or interconnected networks that can interoperate seamlessly even across competitors, will lead to financial innovation we’ve yet to conceive. Many of these “network of networks” are still in early stages, but you can begin to see them forming with collaborations such as we.trade, which was originally designed to streamline the process of granting credit to SMEs in Europe by reducing the length of the process from days to seconds.

Blockchain in Thailand: Creating a network effect

Network effects can be transformative. Just look at what’s happening in Thailand. What started with Kasikoran Bank’s foray into blockchain though a letter-of-guarantee app became, under the central bank’s guidance, a blockchain initiative consortium involving 14 other banks.

The pilots kept coming from there. The country’s central bank announced it would develop its own digital currency, which it is now deploying among eight partner banks to improve trade settlement. Having validated this initial concept, the Thai government is exploring other use cases for its digital currency, from customs to bond sales. By progressing its blockchain networks, Thailand is already starting to see the benefits of a so-called network effect as more and more FinTechs flock to Thailand to begin building on top of that ecosystem.

What did Thailand and specifically the Central Bank of Thailand, do right?

They started with a simple use case. They didn’t try to tear down its existing financial infrastructure and rebuild it from scratch. Slowly, however, this has resulted in a movement.

With support at the government or institutional level, the Thai Central Bank’s newer, better standards are rapidly being adopted, opening up collaboration with more local FinTechs to build further on top of this new infrastructure, ultimately to offer more services to the market, from microloans to card-less ATMs. This level of innovation is already being replicated elsewhere.

Global trade: Building a network of networks

Nowhere will this transformation be more palpable than in global trade, where products like TradeLens and we.trade are already beginning to transform practices that have been in place for decades. Each individual network emerged to streamline a particular aspect of trade function, TradeLens to digitize and manage the flow of goods and documents, and we.trade to automate and automate international financial transactions.

Through these two products, the three most important aspects of global trade — the flow of goods, the flow of documents and the flow of money — can for the first time be truly interconnected, thereby laying a new underpinning fabric and digital corridor to facilitate global trade.

It is not only through these networks where such wins can be found. IBM has helped many FinTechs and financial institutions put blockchain-based use cases into production doing real transactions, from proxy voting and the short sale of securities to the settlement of alternative asset classes and ATM fund settlement.

Because of these inherent advantages, it only is a matter of time before blockchain technology becomes the underpinning fabric of business transactions around the world. There is still time for early adopters to seize a first mover advantage. We at IBM are excited to partner with you and bring our experiences to bear in helping you take the leap and become part of such an exciting change.

Learn how industries are revolutionizing business with IBM Blockchain





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How Blockchain Is Driving Innovation In Financial Services
How Blockchain Is Driving Innovation In Financial Services
How Blockchain Is Driving Innovation In Financial Services
How Blockchain Is Driving Innovation In Financial Services

How Blockchain Is Driving Innovation In Financial Services

How Blockchain Is Driving Innovation In Financial Services