How are we banking on the future with Blockchain?

Banks are some of the oldest institutions in the world, and while they’ve gone digital, we’ve yet to see how Blockchain and cryptocurrencies are going to disrupt how we bank in the future.

Anna Santiago
Nov 7 · 5 min read
Photo by Blake Wisz on Unsplash

The last 10 years have been monumental in the change they have brought about in the way we live, work, and play. The previous chapter of this series took a look at how new developments in distributed ledgers and cryptographic encryption has affected our social media behaviour. Today, we’ll take a look at how the digital age has been changing the banking sector, and what interesting platforms have come about.

In the last decade, retail banks have made huge strides in developing digital business models — millions of people have become banked through mobile banking, and data is driving much of the services provided to the consumers.

However, in 2016, Facebook IQ published a white paper entitled “Millennials + money: The unfiltered journey” and found that 92% of millennials don’t trust banks. Most chatter suggests that this distrust was shaped by the 2008 financial crisis, and out of this lack of loyalty it seems a slew of “digital banks” have sprung up — Revolut, Transferwise, N26, and the list keeps growing. These banks offer a smattering of services, often surrounding fee-free currency exchange (for the avid millennial travellers!), prepaid debit cards (because millennials are super in debt), and peer-to-peer payments (because millennials always run out of cash and have to pay friends back for the cash they borrowed).

Enter blockchain technology, an innovation that seems to be shaping up to the challenge of (re)banking these millennials. What is blockchain, and how could it rebuild trust in the future banking consumers?

Blockchain’s three key properties make it disruptive to the existing banking infrastructure:

  1. Transparency
  2. Decentralisation
  3. Immutability

Transparency

Blockchain technology records all transactions to a ledger, that could theoretically be accessed by anyone in the world (so long as the ledger is made accessible to them, either publicly or through permissioned logins). It allows everyone to audit transaction histories, and see all transactions as they happen live. This allows people to verify independently that their transactions have occurred, and even track the transactions of other parties within their network.

Decentralisation

As there is no central governing body, anyone and everyone could theoretically be allowed to join a banking network. Identities are often masked behind cryptographic public keys, and everyone contributes to the computing power of the network. Governance models have arisen from this decentralised model, with concepts of transaction verification and validation melding with a more democratic voting structure. In this way, the blockchain allows all participants in the network to have a say in the network’s activities and transactions.

Immutability

The blockchain is distributed across the entire network’s computers and is also cryptographically secured. Thus, in theory, no one has enough computing power to hack into, tamper with, or corrupt past information. One could place their trust in the ‘hardness’ of the data, and trust that transactions that are recorded have in fact been executed accordingly. This, in combination with Property #1, should increase trust people would have in the functions and operations of the banking network.

These key properties of a blockchain allow governments, banking institutions, and infrastructure providers to create networks of shared electronic ledgers that eliminate the need (and cost of) middlemen, increase transparency of operations to their users, and ride on the distributed network to facilitate almost instantaneous transactions.

In fact, Accenture conducted a survey across eight banks with a cost base of US$30bn, and estimated that the implementation of blockchain could result in cost savings of almost US$8bn. There would be cost savings from central finance reporting, compliance efforts, centralised operations management, and on certain business functions.

Additionally, blockchain technology would save time, particularly in the area of international payments and remittance. Cryptographically-secured transactions, such as Santander and Ripple’s Xcurrent OnePayFX are able to offer same day international transactions for customers in Brazil, Spain, the United Kingdom, and Poland — this is a massive improvement over the current wire transfer settlement period of 3–5 working days (not even considering the really high fees incurred from wire transfers!).

Banks may be experimenting with blockchain today, but several app-banks and P2P payment companies have evolved to take a piece of the pie — Circle, ABELE, and Revolut are notable examples.

Circle positions itself as a new kind of global financial services company — “A platform for individuals, institutions and entrepreneurs to build businesses, invest and raise capital with open crypto technologies.” The company comprises several products, including Poloniex (a cryptocurrency exchange), its own stablecoin (USDC), a seed-investment platform, an OTC desk (for large volume crypto transactions), and a research arm.

ABELE Trust calls itself an “offshore neobank” that leverages blockchain technology and artificial intelligence to make banking better for everyone, institutional and retail clients alike. It has several functionalities such as multi-currency accounts, interest-bearing accounts, multi-signature accounts, custodial services, survivorship, and aggregated trading prices with its network of partner exchanges.

Revolut positions itself as a money management platform, a “global bank” to suit each customer’s lifestyle, particularly targeting customers who are seeking a “financial partner”, not just a bank. Their products include multi-currency transfers, budgeting tools like recurring payments, and peer-to-peer transactions. They are also launching a Business arm that aims to eliminate stress from company accounting and make it simpler to manage employee expenses.

In theory, the nature of blockchain is much more in line with the expectations of the rising millennial generation, who value transparency, trust, and control. It also appears to bring positive change to institutional banking corporations, who stand to enjoy cost-savings and efficiencies with deploying this new technology.

However, there are still many challenges to adoption on all fronts — what are the costs to implementation? What about governance? People want control (and by extension self-governance), but when things go wrong we still naturally look to a governing body to blame, for recourse, for help. Blockchain is decentralised and in its purest form has no governing authority — are we ready for this degree of responsibility and accountability?

Grounded.Work

Blockchain is more than finance and technology. Decentralisation is not just a technological revolution, it is a social movement, a cultural phenomenon waiting to explode.

Anna Santiago

Written by

Tech enthusiast, life hacker, aspiring polymath & polyglot

Grounded.Work

Blockchain is more than finance and technology. Decentralisation is not just a technological revolution, it is a social movement, a cultural phenomenon waiting to explode.

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