Banks are spending an estimated $1.7 billion annually in blockchain as products continue to roll out.
This is according to a report published by Greenwich Associates, a Connecticut based management consulting firm.
Blockchain has become one of the most sought-after technology as companies and businesses from every sector of the economy continue to explore the technology and it’s potential. This research comes as a surprise to many due to the strong stance banks have taken against cryptocurrencies ever since Bitcoin was created for different reasons. They have however taken a liking for blockchain technology due to its importance and has been spending quite a lot of money in it.
The R3 consortium, which was launched four years ago, still remains the most popular bank organized project with the banking sector now moving past the proof-of-concept phase and slowly making progress in rolling out commercial blockchain products. The factsheet by R3 estimates $35 billion operating and capital cost savings in financial services from blockchain.
The Greenwich Associates study revealed that the budget by banks for research on blockchain technology went up by a whopping 67% in 2017. In addition to that, one in 10 of the banks and companies that formed the consortium is now spending over $10 million on the blockchain technology.
These findings were reached after Greenwich conducted over 200 interviews with participants of the market. This research is considered to be one of the most comprehensive studies on blockchain to date, covering numerous aspects like blockchain budgets, team sizes, use case exploration, key challenges and other issues.
The report added that banks and other top companies increased their blockchain initiatives last year with the top banks hiring roughly 18 full-time employees to work on the technology. Among the participants interviewed, 14% revealed that they have successfully deployed a production blockchain solution as they have been focused on payment solutions and trade finance.
The primary reason why banks and other companies are looking to blockchain technology is due to cost reduction potential. Even though blockchain presents them with other benefits like revenue opportunities, settlement issues, diminished risk and cost of capital, the reduction in the cost of running their services is the main reason why they are working to explore the benefits of the tech. this is according to vice president of Greenwich Associates Market Structure and Technology, Richard Johnson, who is also the author of the study.
More than half of the executives we interviewed told us that implementing DLT was harder than they expected. Nevertheless, more than three-quarters of projects currently under development are expected to be live within two years.
The report stated that payment solutions are the primary goals for banks as they harness the benefits of the technology with banks currently losing the race in terms of transaction volumes and fees. Legacy systems are now competing heavily with banks as they provide scalable, real-time and on-demand infrastructures which also has transaction costs that are very negligible.
The cross-border payment business is now being handled by fintech companies with banks left on the sideline. Over 40% of the market share for consumer-to-consumer (C2C) cross-border payments is now handled by these fintech companies. The fintech companies have also taken over 30% and 5% of the consumer-to-business (C2B) and business-to-business (B2B) payments markets respectively, with banks relinquishing control of these services unwillingly.
Blockchain still not ready to support financial market infrastructure
A few days ago, it was reported that De Nederlandsche Bank (DNB), Netherlands Central Bank has concluded that blockchain technology isn’t ready to support financial market infrastructure. This conclusion comes after the bank reported its progress so far on the technology in a research that spanned three years.
The DNB revealed that in its current state, the blockchain technology still has some loopholes that don’t make it ideal for supporting financial market infrastructure. The bank admitted that the technology has huge potentials but isn’t ready to be used in its current state due as it can only increase platforms cyber-security but would be found lacking in other relevant areas. The bank added that it would continue the research.
It is very clear that the blockchain technology is one of the most important technologies available at the moment as it is mentioned alongside other technologies like artificial intelligence and internet of things.
The European Central Bank and the Bank of Japan are two other central banks that are actively working on the blockchain. With the number of researches and studies carried out on blockchain every day, it is evident that the blockchain technology has a place in the future of global finance.