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Why blockchain matters to payments

Jeremy Light, Managing Director, Accenture Payment Services | Oct. 6, 2015
Jeremy Light of Accenture talks about the impacts of blockchain on the payments industry, and provides advice on how banks should address them.

This vendor-written piece has been edited by Executive Networks Media to eliminate product promotion, but readers should note it will likely favour the submitter's approach.

There are more than 200,000 Bitcoin transactions per day globally and its market capitalisation is fluctuating between US$3 billion and US$4 billion, a staggering number for what is effectively the newest currency in the world.

However, rather than the currency itself, many financial services executives are more interested in the underlying technology that Bitcoin uses - specifically the "blockchain", or more generically the distributed consensus ledger (DCL).

Interest focuses particularly on this technology's potential to enhance efficiency, trust, transparency, reach and innovation in the financial markets. As various players investigate these possible uses, grand claims are being made about the potential to revolutionise financial services, disrupt long established business models and reduce costs.

Payments is one of the areas where blockchain or DCL may prove valuable. It is also a topic that will be discussed in Singapore during the global financial services conference, Sibos, in October.

Coindesk estimates that more than US$800 million has been invested in Bitcoin companies, most of which in the past year. This is also happening in our backyard. In July, Singapore-based BitX, a cryptocurrency-based Bitcoin startup operating a wallet, several exchanges, and merchant integration services, raised US$4 million in a Series-A round of fundraising.

At the same time, banks have set up innovation laboratories and R&D programmes focused on blockchain/DCL technologies. Accenture is also investing in R&D in this area, running our own blockchain, smart contract applications and DCL initiatives across a range of industries including financial services, utilities, and consumer electronics, at our Technology Labs around the world.

However, while innovation around DCL capabilities is under way, it still remains largely hyped about, making it difficult for banks to decide exactly where and how to address the opportunity.  The ambitious claims about its potential benefits - "savings of tens of US dollar billions a year" - are hypothetical at this stage, and although plausible, have not yet been backed by evidence. Continuing regulatory uncertainty also remains a drag on innovation.

Nevertheless, a conservative assessment confirms that DCLs can make a difference compared to existing technology. They enable democratic, distributed, and evenly-balanced control to be implemented and exercised in situations where it is currently not possible or easy to do so.

These include cases where oversight by a central authority is not feasible, such as with international payments; Or where a centralised control point, restrictions, or intermediaries exist, creating unnecessary inefficiencies, costs and barriers for correspondent banking payments, card transactions, and international remittances.  These will have a strong impact on banks operating in Asean, given that it is a hub for international trade.


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