In the past year, the banking industry has wrapped its head around blockchain Distributed Ledger Technology (DLT) and clearly identified use cases where they would benefit from its use. The most commonly talked about are fraud reduction, customer management/Know Your Customer (KYC), and transaction cost reduction.
Banks are now in a phase of experimentation with these cases. For example, the Royal Bank of Canada is testing payments between Canada and the US using Hyperledger technology.
Credit unions are following the trend too, for example with the first phase of the CULedger project for identity management. The National Association of Federally-Insured Credit Unions is joining Hyperledger, which will enable them to collaborate with other major actors from the banking industry and join finance, supply chain and manufacturing in democratizing the usage of DLT.
Digital ledger technology is still a young technology, and complex to integrate. Collaborative efforts for building prototypes using DLT will increase the adoption rate and drive down cost, by establishing standards.
The priority today for financial institutions like banks and credit unions is to improve their customer experience, pilot their business by making informed data-driven decisions and be in position to innovate quickly with an application platform in place that allows them to make quick changes. In that context, the addition of a new technology like blockchain has an entry cost, and risks associated with might be too great for smaller organization, and not makes sense for them in the immediate future.
Blockchain technology is already enabling a paradigm shift that is revolutionizing how business is conducted, by providing an entirely new way to exchange assets. Business understands this and is investing in it. At the current pace, I wouldn’t be surprised to see a lot of the banking services we’re currently using implemented on blockchain technology.
Further, pure blockchain players will be only part of its success – the entire software ecosystem will follow to make this technology work everywhere. We already see this with consortia of companies that have come together to promote blockchain technology like Consensys, Hyperledger, and CULedger. Soon, application platform providers, cloud providers, and others will either integrate blockchain as part of their offers or make the move to facilitate its integration.