A distributed ledger technology may cut banks’ infrastructure expenditure dramatically in the next few years, a recent paper of Santander Innoventures suggests.
By 2022, the blockchain technology may save banks $15-20 billion a year by reducing infrastructure costs associated with cross-border payments, securities trading and regulatory compliance, estimates Santander Innoventures. An innovative investment vehicle for Spanish bank group Santander has recently published a document called “The Fintech 2.0 Paper: rebooting financial services” in a collaboration with Oliver Wyman and Anthemis group.
The paper states that distributed ledger technology eliminates the need for central authorities to certify ownership and clear transactions. It can be used to bypass a slow and expensive international payment networks or be adopted in securities, syndicated lending, trade finance, swaps and derivatives via “smart contracts”.
However, reducing operational costs is not the only potential advantage of distributed ledgers if leveraged by banks. It can also provide an essential transparency for products whose underlying assets are now opaque (e.g. securitisations) or establish property rights where they are made uncertain by the role of central authorities, the paper claims.
Santander Innoventures is a London-based $100 million investment fund founded by Santander group in July 2014. It aims “to support the digital revolution” by partnering with small FinTech businesses and start-ups. Santander is the largest bank in euro zone by market capitalisation. It operates across Europe, Latin America, North America and Asia. In 2014, the bank declared the attributable profit of EUR 5,816 million.
As CoinFox wrote earlier, a growing number of high profile banks on both sides of the Atlantics start their experiments with the blockchain technology. This April, UBS, a major Swiss bank, made public its plans to open a technology lab to explore potential uses of the blockchain in the financial industry. Several days later, a similar statement was made by the Bank of New York Mellon. The financial institution is going to build an application using open source code from Bitcoin.org. It is attempting to incorporate security advantages of bitcoin into the bank’s internal network. In June, the Commonwealth Bank of Australia revealed its plans to embrace Ripple protocol to transfer payments between its subsidiaries.
Finally, LHV bank Estonia and a Colored Coins software company ChromaWay AB have already created a new blockchain-based platform and a wallet for P2P transactions in euros. The blockchain technology potential was also acknowledged by the European Banking Association. The organisation believes that in the next one to three years cryptocurrencies and their supporting technology can change the way traditional finance works.