BANKING ON BLOCKCHAIN 7 INSIGHTS & IMPLICATIONS Blockchain’s components – such as cryptographic hashes, distributed databases and consensus building – are not new. But when combined, they create a very powerful new form of data sharing and asset transfer, capable of eliminating intermediaries, central third parties and expensive reconciliation processes. Since the 2008 global financial crisis, the capital However, there is compelling evidence markets industry has faced a perfect storm of diminished that blockchain could radically reduce, returns, largely due to the rising cost of regulatory if not entirely eliminate, many existing compliance, rising capital allocations and liquidity clearing and settlement processes. costs, and dwindling revenue. “We estimate that investment banks SAVE $BILLIONS spend around two-thirds of their IT A YEAR budgets supporting legacy back-office It has enormous implications for infrastructure, plus $billions more each trade confirmations, reconciliation, cash management, asset year on cost reduction initiatives.“ optimization and other exceptions- based business logic processes In other words, it’s costing too much time, effort, that cost $billions a year. liquidity and capital to support processes that don’t offer a sustainable improvement in profits. Consequently, REDUCE TIME banks, central banks, exchanges and clearing houses are urgently experimenting with blockchain as a way to tip WINDOWS the cost fundamentals and return to profits that improve Depending on the underlying asset(s) Return on Capital. and counterparty requirements, it also To be clear, we are not suggesting that blockchain is promises to optimize settlement by greatly a panacea to remedy all the ills of investment banking. reducing the time or even completely For many use cases, conventional database structures eliminating windows for delivery versus or processes will achieve a similar outcome without the payment, while supporting the needs of costs and challenges of a blockchain solution. Examples market makers. include internal automation, staff reduction and outsourcing/offshoring. IMPACT COST DYNAMICS Ultimately, it would enable decommissioning of large parts of today’s back office infrastructure and externalization of key operational processes to industry utilities – profoundly impacting cost dynamics.