BANKING ON BLOCKCHAIN 6 HOW 8 BANKS COULD SAVE $8 BILLION PLUS At today’s cost structure, the results It’s important to note that if significant problems or demonstrate initial savings of $8 billion regulatory hurdles prevent blockchain’s widespread on a cost base of $30 billion. These adoption then these savings may not be realized. estimates do not include potential costs Given predictions of material cost savings, it’s no surprise and investments required. This equates that spending on blockchain in the Financial Services sector is accelerating, especially at a time when the rising to approximately 27% across the eight cost of capital is making it hard to increase profitability by banks we surveyed. traditional methods. In September 2015, Aite Group, an independent research organization focused on financial services, forecast that blockchain spending among capital markets players in 2016 would be around $125m2. Just CRITERIA nine months later, a study by Greenwich Associates, an To guide our analysis, we used a conservative set independent benchmarking research firm, predicted that of criteria, including the following assumptions: 2016 blockchain spend by capital markets firms would 3 be closer to $280m – more than double the previous • That a network effect will only take hold estimate. This illustrates that industry investment in in mature markets by 2025 blockchain is not only accelerating, it is doing so at a rate • Regulatory rules will allow the adoption of that is rising so fast that makes it difficult to quantify the blockchain solutions and decommissioning sums accurately. of legacy infrastructure. Indeed, after the credit crisis of 2008, regulators will likely be reluctant to materially reduce the role of newly created and strengthened clearing and settlement infrastructure (ACHs, RTGSs, CCPs and CSDs) without being absolutely confident that blockchain networks are a safe, secure and resilient alternative. • The impact on cost of premises (buildings, $280M facilities) was excluded 2016 CAPITAL MARKETS • Differences between fixed and variable costs were factored in. SPEND ON BLOCKCHAIN – 2X ESTIMATIONS At this stage, these estimates could prove conservative. 1 Our initial estimates assume business and central operations would be ‘fundamentally impacted’, suggesting cost savings 30% of approximately 50%, as seen on the High Performance Investment Bank heat map in diagram 1. In fact, our initial use AVERAGE ESTIMATED case, proof of concepts and early test environments show POTENTIAL ANNUAL the potential to further increase these savings so that they SAVINGS move into the ‘disruption’ category, raising the total in excess of 70%. Considered in this light, annual cost savings would equate to 38% or around $12 billion. If we take an average of this $12 billion with the $8 billion base case cited above, we estimate $10 billion in annual cost savings.