• September 22, 2016

Flipping Financial Services: The Power of Blockchain

Cut time and costs while reducing fraud and counterfeiting threats. 

The technology underlying the digital currency bitcoin, blockchain is poised to upend traditional financial services enterprises. The power of the technology lies in its inherent security and ability to facilitate trust directly among the participants in a transaction. This makes it possible to eliminate middlemen such as title-search firms in real estate and law, and clearinghouses in financial trading. Advantage: the elimination of intermediary fees and a dramatic reduction in the time it takes to process transactions—from days to minutes or seconds.

What is Blockchain?

Think of a blockchain as a digital data structure that represents a financial ledger or a record of transactions. Each transaction is digitally signed so the ledger is assumed to be of high integrity. Blocks of data—each containing a set of transactions—are chained together electronically and secured through cryptography.

The benefits of this architecture emerge when these digital ledger entries are shared among a peer-to-peer network of computers. “Because each participant or node has copies of the authenticated ledger, the system provides a consensus about the state of a transaction at any given moment,” says Daniel Biondi, Enterprise Services Chief Technologist, FSI APJ. This consensus enables the entire network to reach agreement about which blocks of transactions are valid and which are not—without the need for a central authority or middleman.

Benefits Beyond the Financial Services Industry

Blockchain technology gives enterprises a way to track the state and integrity of a particular asset or transaction. Because each participant in the network has its own copy of the ledger, the system is highly resilient as it is not reliant upon any single participant.

Enterprise Services Innovation Lead, EMEA, Bjoern Obermeier adds, “It’s easy to see how blockchain technology could propel the transformation of the financial services industry. But it can transform typical enterprise processes as well.” It could streamline cross border payments, remittances, and trade settlements while decreasing fraud worldwide. Because it eliminates easily forged paper documentation, blockchain technology could provide authentication of ownership for big-ticket items such as fine art, antiquities, precious gems, and titanium aerospace parts.

Smart contracts, automatically executed by nodes on a blockchain, could prevent piracy in music and movies. “Drugs and medical devices could be marked with identification numbers on a blockchain, enabling pharmaceutical and medical device companies to track goods end-to-end through the supply chain, dramatically reducing theft and counterfeiting,” says Tom Hetterscheidt, Enterprise Services Chief Technologist, FSI North America.

While transforming the highly complex global payment ecosystem is a daunting task, what with its encompassing regulatory framework, the sheer force of blockchain’s disruptive innovation might propel its adoption. Its key advantages of automation, decentralization, speed, efficiency, and certainty might drive it toward a transformative tipping point faster than many think, and change financial and legal transactions forever.

For more from Enterprise Services experts on the potential of blockchain technology, download the full white paper.