The worlds banks are currently looking at finding new ways to exploit blockchain technology. If you haven’t heard of it (hard to believe), Kate Knibbs says "it’s a simple digital platform for recording and verifying transactions so that other people can’t erase them later."
Most well-known for being used as the public ledger for all Bitcoin transactions, whilst everyone can inspect the ledger, no single user controls it. Relying on cryptography instead of a central authority means that it is more difficult to achieve fraud. As Kate Knibbs explains in her article for Gizmodo, “blockchain is designed to make transactions safe and reliable even if the people doing them don’t trust each other.” Security is made possible because a long chain is created from a number of transactions and if you try to cheat it, given that many people are building on the chain, one single user cannot in practice create a longer chain. Click here to find out more.
Money transfer companies using block chain
The opportunity to utilise blockchain is enormous, with many start-ups being created to build on the technology or to incorporate it. According to Business Insider, many of these new young companies have a very promising future. This is because less regulated money transfer service companies are keen to exploit any and all competitive advantages they can. By offering access to Bitcoin (and other cryptocurrencies), they add to an already impressive arsenal that is being used to try to lure clients of traditional banks away from the comfort of conventional secure bank payments. Does it have to be this way? The answer is no. For many reasons, which we will explore in our next blog post.
In the meantime, money transfer organisations, eager to compete with banks by offering an alternative to international transfers, are looking to block chain technology to help improve their services with faster and more transparent transactions. A benefit of blockchain is that it comes with low overheads and worldwide reach. In 2013, open-source cryptocurrency DogeCoin, was created using the technology and now has a USD $12.5 million capitalisation. View their block chain here live.
Banks are thinking beyond updating systems
Banks are responding by looking to provide solutions that make it easier for customers to make a payment anytime, anywhere with the added security that only a bank can provide. The increased competition, coupled with the need to comply with tough new regulations (see our blog on MiFID for instance), is encouraging banks to look above and beyond simply updating their back and front office systems. Instead, more and more banks are investing in partnering with organisations that will enable them to compete with not only today’s digital banks but the many organisations that have successfully entered their markets, such as Western Union or PayPal.
A number of banks have joined a global consortium working on ways blockchain technology can be used in financial markets. BNP Paribas, Wells Fargo, ING, MacQuarie and the Canadian Imperial Bank of Commerce are the most recent names to have joined 25 other banks including JPMorgan and Citi in the initiative, led by New York-based financial tech firm R3.
Banks worldwide have even gone so far as to invite the technology disrupters into the bank to take part in “hackathons” as part of the “Open Bank Project” and are offering the disrupters funding, support and resources to design and develop “the next big thing”. That’s why 2016 maybe the year when banks capitalise on blockchain technology.
