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Investment banks could save US$8 billion to US$12 billion with blockchain

Adrian M. Reodique | Jan. 20, 2017
Banks could reap significant savings on their core middle- and back-office processes by using blockchain.

Blockchain could help eight of the world's 10 largest investment banks reduce their infrastructure costs by an average of 30 percent, or US$8 billion to US$12 billion, in annual cost savings.

This is according to the report by Accenture and McLagan, a benchmarking firm under Aon Hewitt, titled "Banking on Blockchain: A Value Analysis for Investment Banks".

"Capital market institutions have faced a perfect storm of regulatory-compliance costs and revenue pressures in recent years, prompting them to invest in emerging technologies as a lever to improve profitability," said Richard Lumb, Group Chief Executive for Financial Services of Accenture, in a press release.

The report defined blockchain as a type of database system that enables multiple parties to share access to similar data in a secured manner. Blockchain is powered by advanced software, communications, and encryption that enables investment banks to move from maintaining a separate database structure to a shared distributed database across organisations.

In addition, blockchain supports a shared digital ledger of transactions that are recorded and verified across a network of participants. The transactions thus reside in a tamper-evident data structure.

In line, the report suggested that banks can reduce or eliminate reconciliation costs by replacing traditionally fragmented database systems with a distributed ledger system, while improving data quality.

As a result, banks will reap significant savings on their core middle- and back-office processes. For instance:

-          Finance-reporting costs could drop by 70 percent as a result of the optimised data quality, transparency and internal controls provided with a shared, single source of verified data. 

-          Compliance costs could shrink by 30 percent to 50 percent at the product level and on a centralised basis because of the improved transparency and auditability of transactions.

-          Centralise operations that support functions such as 'Know Your Customer' (KYC) and client onboarding could contribute to 50 percent savings by establishing more efficient processes to manage digital identities, and by mutualising or sharing a single source of client data securely across multiple banks; and

-          Business operations such as trade support, middle office, clearance, settlement and investigations could bring 50 percent saving costs by reducing or eliminating the need for reconciliation, confirmation, and trade-break analysis.

"Given the tremendous cost of data reconciliation - which is part of every aspect of the capital markets industry - it's no surprise that we've seen a significant amount of investment in blockchain technology. But, as with any emerging technology, understanding what these investments might yield is a challenge. As we move into production implementations, bank executives will need a clear roadmap for how and where to rethink their strategies and redesign their operating models, which is why we undertook this unique study," explained David Treat, Managing Director for financial services industry blockchain practice of Accenture.


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