Lowering Costs by using Crypto-technology

The last few posts at The Blockchain Academy[1] mostly focused on blockchain or crypto technology penetration in different industries for making transactions safer, easier and more efficient. If you have read the previous discussions carefully, you must have noticed one more differentiating feature of crypto technology, and that is cost saving. However, we never discussed it in a great deal that it should be. Hence, in this article, we will exclusive see this aspect of crypto technology and blockchain.

As we have already seen, the blockchain technology holds the potential to help profitability pressures on banks, especially in Europe’s negative interest rate environment. Patrick Laurent, a partner at Deloitte, told delegates in one of the official meetings organized by Temenos, that businesses like Ripple had already generated blockchain solutions that are of much help to lower costs[2]. In the meeting, the live polling was also organized, which backed his assertion. The polling showed that most of the bankers, consultants, technologists and others experienced lower infrastructure costs as the main advantage of blockchain technology. Another benefit that is reported to be brought about by crypto technology, include transparency and enhanced customer service.

The Head of transactions of ABN Amto, Patric Stutvoet, states that the conventional earning models are diminishing. He asserted that there is a need to look at less expensive ways to manage operations and adding blockchain can really help to decrease risk on collateral through faster fulfillment[3]. He stated that it is like developing a single source of trust, implying that funds can be transferred immediately, freeing up working capital for customers.

For the financial services industry, crypto technology brings an opportunity to renovate a present banking infrastructure, speed up settlements and streamline stock exchanges[4], though regulators would require it to be more securely done. The developments are expected to combine two of the most vibrant industries; the computing hub of Silicon Valley, and the money management of City of London and Wall Street[5]. Michael Harte, the Chief operations and technology officer at Barclays, states that they could go the way that file transfer technology transformed music, enabling new businesses such as iTunes to rise. Due to this reason, there is such feverish activity at the moment.

Mainly, the blockchain is the network of computers, all of which need to approve a transaction processing before making its record, in a chain of computer code. As with the bitcoin, the first application of the technology, used for money, the cryptography is used to keep transactions safe and costs are shared among those in the network. The information regarding the transfer is recorded on a public ledger, which can be seen by anyone who is on the network.

The crypto technology is able to cut the bank’s infrastructure costs for cross border payments, securities trading and regulatory compliance, by almost 15 to 20 billion USD per year from 2022 and onwards, as stated in the latest report by Spanish bank Santander, management consultancy Oliver Wyman and Venture capital investor Anthemis[6]. In a number of areas, it seems that blockchain will work and it is easy to understand how it can revolutionize finance. Rhomaios Ram, head of product management at Deutsche Bank’s global transaction banking division, said that speed of implementation is so much faster for securities settlements, and we can see how it can reduce the capital, that banks have to hold, against each trade.

For large scale banks, scrambling to update their often obsolete IT systems in view of pressures from regulators, cyber criminals, and digital challengers, crypto technology and blockchain bring an opportunity to rethink much of what they do. The ability of the crypto technology to give a record of identity that cannot be forged, including the history of an individual’s transactions, is one area being heavily explored[7]. Intermeshing records could prove highly useful in cross checking the actions of individuals, insurers believe.

While they understand its potential, many financial institutions are still trying to work out whether blockchain technology offers a cost-cutting opportunity or represents a margin-eroding threat that could put them out of business. Banks are taking a variety of approaches in their search for answers.

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[1] TheBlockchainAcademy.com
[2] http://www.bankingtech.com/595462/lower-cost-is-key-benefit-of-blockchain/
[3] http://www.bankingtech.com/595462/lower-cost-is-key-benefit-of-blockchain/
[4] http://ftalphaville.ft.com/2015/10/30/2143499/if-you-call-it-a-blockchain-its-not-a-competent-administration-story-anymore/?Authorised=false&_i_location=http%3A%2F%2Fftalphaville.ft.com%2F2015%2F10%2F30%2F2143499%2Fif-you-call-it-a-blockchain-its-not-a-competent-administration-story-anymore%2F&_i_referer=&classification=conditional_registered&iab=barrier-app
[5] https://www.ft.com/content/eb1f8256-7b4b-11e5-a1fe-567b37f80b64
[6] https://ggit2u.com/product-service/crypto-technology/
[7] http://video.ft.com/4584674442001/The-blockchain-Wall-Streets-latest-buzz/Companies