Banking As A Digitized Network
The foundations of financial transactions, regulations, and assurances have remained unchanged, with burdensome and labour-intensive documentation processes required to minimize risk and provide assurances.
International trade finance is the underlying core of the global financial system and one area that garners significant friction. The production and movement of goods and services around the globe requires multiple parties continuously checking such transactions.
The multitude of monitoring and information required to provide assurance in supply chains leads parties to operate their own systems, from producers, shippers, importers and exporters, banks and insurers, warehouses, ports and customs, to name a few.
Such repetition and duplication add significant costs – it is no surprise that the last few years have seen billions of dollars of investments in distributed ledger technologies.
Many new technologies are rapidly maturing and being adopted
Cryptographic currencies, distributed ledger technologies, application programmable interfaces, robotic process automation, real-time satellite & GPS tracking are all now matured technologies, and the combination of these technologies will pave the way for the future in the physical commodities trading sector.
Technologies such as distributed ledgers and blockchains will transform the whole industry, providing greater security, reduced costs, and faster turnaround.
Blockchain technology provides the needed trust for immutability, traceability, and auditability features within its distributed ledger technology. A DLT enables all, or some parties, to be present within the same interoperable network with access to verifiable information in real-time. It can also eliminate many intermediaries – this includes regulators, tax, police, and customs authorities.
Fast-paced development and adoption
Investment and development within the banking industry focused around distributed ledger technology over the last few years have been substantial. Now, a multitude of blockchain-based financial applications are ready for commercialization; the coming years will determine which platforms become the defacto standard for permissioned distributed ledger technology in finance. The three main contenders leading the charge are Quorm, the enterprise version of Ethereum, and Hyperledger by the Linux foundation & Corda.
Removing friction and saving costs
One of the biggest disruptors on the horizon is smart contracts, rooted in distributed ledger technology, smart contracts will allow participants to pre-program commercial actions that will automatically execute based on defined criteria. Lines of code that can call functions or execute payments, not legal contracts in the traditional sense. Smart contracts expand the utility of distributed ledger technology far beyond just the immutable distributed ledger, to intelligent multi-participant agreements that can self-execute actions. Smart contracts can hold digitized documentation, request underlying information, develop terms, and trigger payment actions, all automatically. Smart contracts and a truly open connected enterprise blockchain network will see broader and faster adoption, and lead to a significant reduction in costs.
The internet of banking
Just as the internet disrupted the publishing industry, new distributed trust-less networks will disrupt and enable new possibilities within the banking industry.
Today’s vast globally-connected and interlinked markets extend far beyond perceived boarders, banking institutions are facing a paradigm shift to meet the expectations of clients, requiring seamless and reliable platforms and ecosystems. Banks are being forced to re-evaluate the services and capabilities they must provide for differentiation. It is expected the future will contain a mixture of different enterprise blockchain networks and banks acting as connectors to these networks, rather than one single standardized platform. The key importance then for banking institutions will be compatibility, being able to provide interoperability within these digitized payment networks.
A great number of pilot projects are now reaching maturity and ready for further expansion, showing great promise in areas such as logistics, post-trade settlement, and open trade-financing connecting consumers to providers of trade finance. Work is now focused on scaling these pilots and realizing their value throughout the supply chain. Initial studies show a potential reduction in paper-based exchange duration by a factor of 10.
Those carrying the responsibilities of technology operations need to take full advantage of the coming disruption and structure their systems in a way that allow the acceleration of digitization and interoperability with these new digital payment networks.
The topics covered in Intuition’s Learning Insights are topics currently in the market. We have seen an increase in demand in prioritising these topics and have developed customized blended learning solutions to solve for this growing need within the Banking & Finance Industry to streamline their workforce with the skills and proficiency needed in today’s environment. Contact firstname.lastname@example.org for a consult on how to tailor this solution for your business needs.
The Intuition online learning library consists of several tutorials related to this article:
- Data, AI, & ML
- AI Applications
- Cryptography & Blockchain
- IT for Non-IT Professionals
For Intuition blended learning related to this article, some of our popular workshops include:
- Disruptive Technology in Financial Services (IBF – FTS Program)
- Cutting Edge Technology in Finance : Big Data, Artificial Intelligence & Machine Learning (IBF – FTS Program)