Over the past year, the cryptocurrency markets have been a constant source of news, both positive and negative. On the whole, though, the industry seems to be coming of age much faster than anyone had anticipated. For example, the growing adoption of security tokens as a fully regulated alternative to the oft-abused ICO process reflects a recognition in the crypto space that it’s time to work towards legitimacy rather than notoriety. As that happens, there’s likely to be more and more buy-in from traditional financial institutions, which have been waiting on the sidelines for the market to mature.
All along, however, the real success story of the cryptocurrency revolution has been the blockchain, which is the technology that undergirds all cryptocurrencies. It has proved adaptable for a variety of uses, including global shipping management, secure medical recordkeeping, and e-commerce solutions. It’s even being used to aid in the operation of a microbrewery.
It is in finance, though, that the blockchain may already be having the greatest impact. Some of the most respected names in global banking are betting big on the blockchain to keep them relevant in the face of a wave of fintech competition. Here’s how.
Globalization creates challenges
Historically, banks and other financial institutions have tended to operate with a focus on a particular geographic location. While they may maintain a presence in remote locales around the world, there would never be any doubt as to where their expertise lay, and what region they were looking to dominate. As the internet grew, however, it started to become difficult to maintain that kind of posture. Banks and financial institutions are now under tremendous pressure from their customers to operate seamlessly across international borders, and it’s no secret that they’ve been struggling to keep up.
The cross-border conundrum
In the highly regulated world that banks and financial institutions operate in, moving money across borders requires a host of regulatory compliance measures (which vary from country to country) that add to the time, effort, and expense associated with the transactions. In recent years, a variety of fintech startups have risen that offer some pretty unique solutions that avoid some of the pain points that traditional banks face when offering cross-border payment services. One such company, called TransferWise, operates a peer-to-peer system that pairs transfer requests in multiple countries in real time, which allows the actual transactions to remain (officially at least) within a single country, avoiding the hassle and cost of traditional cross-border payments.
The blockchain solution
Big banks, not content to watch fintechs chip away at one of their core businesses, have started to band together to fight back. In October of 2017, JPMorgan launched the Interbank Information Network (IIN), which is based on their private blockchain platform and provides a solution for banks offering cross-border payments. The system is designed as a secure network that facilitates the sharing of compliance data to all member institutions in real time. So far, more than 75 banks around the globe have joined in the effort with the aim of improving efficiency in interbank transfers. Going forward, the member banks will have access to customer data that could reduce compliance-related delays from weeks to mere minutes, allowing them to compete on an equal footing with their lightly regulated fintech competition.
Around the world with blockchain
So far, JPMorgan’s IIN represents one of the most notable examples of how the blockchain is changing the global financial industry for the better. It isn’t the only example, however. Some other big, well-known banks have also turned to the blockchain to solve some of their most pressing problems – like the system adopted by UBS, Barclays, and Credit Suisse to improve their data collection and reporting related to the EU’s Markets in Financial Instruments Directive II, which went into effect this year. These projects will likely represent the beginnings of a trend that may well alter global finance forever, which should turn out to be the true enduring legacy of the cryptocurrency revolution – and one that nobody ever saw coming.
To learn more about how technology is changing the banking industry, read Transforming Corporate Banking With Intelligent Technologies.