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BlockChain, present and future in the financial sector

Some of the first real use case examples of DLT technologies applied in the banking sector reveal very promising results.

Some of the first real use case examples of DLT technologies applied in the international banking sector reveal very promising results that point to their standardization in some markets in the short and medium term.

The BlockChain and Distributed Ledger technologies are still in an initial phase in terms of their application as a tool in the international banking sector, but we can already assess a sample of the first use cases that may spot emerging trends.

Main trends

When it comes to positive results, DLT technologies have shown clear benefits in terms of shipping times, paperwork savings and conciliation fees in markets such as the cross-border money transmission market.

It is in the movement of the capital market that there have been a greater number of completed and implemented projects, which suggests that DLT-based solutions will become a standard in the short to medium term mainly due to an enormous reduction in shipping, transaction confirmation and transaction verification times, as well as in conciliation fees.

Banks from all over the world have been successful in developing cross-border payment pilot projects, using distributed ledger technology. At an international level, banks of the caliber of Mitsubishi MUFG, the ninth bank in the world by capitalization, carried out a joint test in May with the largest bank in Thailand and in Spain., BBVA has also recently o carried out successful tests with payments between Spain and Mexico.

Other important players have joined in to take the benefits of Blockchain to the retail sector. So it was that Banco Santander became the first European bank to deploy a service to the public based on Blockchain this year through its One Pay Fx platform, which uses the xCurrent technology developed by Ripple.

Blockchain-based payment platform Ripple has become one of the key players in the payment sector, where giants such as Money Gram –worldwide– or LiamLiam –in China– have joined the project, adopting Ripple as their payment system solution.

Beyond the movement of capital, the benefits of distributed registration technology have also been demonstrated in other markets. BBVA carried out the first Blockchain-based corporate loan worldwide with Indra, and a few months later it carried out the second one with Repsol. In both cases, the loans were developed entirely with Blockchain technology, from the negotiation to the final signature, hence rendering the process more agile and transparent.

To give other examples of success, HSBC, together with ING, handled a letter of credit for Cargill Inc that supported a shipment of soybeans. In carrying out the transaction through the same platform the need for conciliation between the banks was eliminated, which brought substantial time and cost savings.

Some less mature markets

On a less positive note, in the negotiation of certain financial products, whether derivatives or bond origination, this technology presents a great opportunity, but it also requires banks to make a higher investment.

This is where development difficulties have been observed in a greater number of projects in a pilot phase, especially when attempting to scale up the project. This is so because in certain sectors collaboration among the different players is necessary, which does not always come easy.

 

Present and future of Blockchain

In short, Blockchain and DLT technology are already bearing fruit in the banking sector by drastically reducing shipping times, rendering the conciliation process in the movement of capital easier and ensuring the execution of transactions in a decentralized manner. There are already studies that indicate a 30-50% potential reduction in compliance costs due to DLT implementation.

But, at the same time, it is necessary to continue investigating the many potential applications of these technologies in the banking and financial sectors –technologies in which, albeit still under development, possible cross-cutting standards and networks are forming, as in the case of Ripple.

At NFQ we continue working in the field of Blockchain and distributed ledger technology in the financial sector. Moreover, we have partnered up with the Polytechnic University of Madrid, in collaboration with which we have developed a study on the use of this technology in the creation of Smart Contracts.

If you want to know more about Blockchain and its application in the financial field check our Paper: Is Blockchain the future of finance?