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Blockchain, the distributed database technology that help make digital currencies like Bitcoin possible, is more than an enabler of futuristic payment options. Over the next several years, it will help financial services firms slash costs by billions of dollars, according to a new report from BIS Research.
In its forecast on the impact of blockchain on the financial services market through 2026, the firm concluded that organizations can cut the cost of know your customer and anti-money laundering (KYC/AML) operations by $6 billion to $8 billion each year. Those reductions come in the form of fewer investments in IT, infrastructure and administrative personnel, as well as improved operational efficiencies and pouring less money into third-party fees.
The cost savings for other segments of the market are even more pronounced.
In trade finance, blockchain-based solutions can slash costs by $30 billion to $40 billion each year, BIS said. Meanwhile, the capital markets stand to achieve cost savings of $50 billion to $60 billion.
Many types of businesses are exploring blockchain, but fintech (financial technology) companies are leading the charge.
"While the use cases of this technology are largely being explored across different industries such as healthcare, real estate, media and travel, and hospitality among others, the financial institutions have been the front runners in the development of blockchain technology and have already implemented a host of successful use cases, ranging from pre-IPO trading platform released by NASDAQ to cross-border payment platform created by Ripple," stated BIS Research. "By cutting the middlemen and increasing the efficiency, blockchain is anticipated to cut the transaction and infrastructure costs by over 50 percent for finance companies."
BIS also noted that some of the world's largest financial institutions are already working on blockchain deployments, including Barclays, Citibank, Goldman Sachs and J.P. Morgan. Naturally, some IT heavyweights are also using their technological savvy and influence to add momentum to the blockchain in fintech movement.
Last month, IBM announced that its Digital Trade Chain Consortium had selected its IBM Blockchain service for a new a new trade finance platform. The consortium consists of seven large European banks, namely Deutsche Bank, HSBC, KBC, Natixis, Rabobank, Societe Generale and Unicredit. The solution will run on IBM Cloud and use Hyperledger Fabric, an open source blockchain framework.
In February, dozens of technology companies, startups and financial services institutions, including Microsoft, Intel and J.P. Morgan, announced they had joined the Enterprise Ethereum Alliance. The group is tasked with setting standards for secure, enterprise-grade applications and smart contract systems built on Ethereum.
Pedro Hernandez is a contributing editor at Datamation. Follow him on Twitter @ecoINSITE.