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Blockchain can cut investment bank infrastructure costs by 30%

Investment banks can make huge cuts to their IT infrastructure costs through blockchain, according to analysis

The biggest global investment banks could reduce the cost of their IT infrastructures by up to $12bn a year on average by using blockchain technology, according to a report.

Benchmarking firm McLagan analysed information about the cost structures of eight global investment banks, and Accenture used a modelling tool to see where savings could be made.

It found that using blockchain, the distributed ledger technology that stores a permanent and tamper-proof record of transaction data, could reduce costs for these banks by 30%.

“Given the tremendous cost of data reconciliation, which is part of every aspect of the capital markets industry, it’s no surprise that we’ve seen a significant amount of investment in blockchain technology,” said David Treat, managing director at Accenture’s financial services industry blockchain practice.

Banks across the world are trying out blockchain for different processes. For example, working with startup bank Wave UK, Barclays tested the use of blockchain technology in September 2016 to complete a large trade finance agreement. Using the distributed ledger technology, the Wave platform allows all parties involved to see the documents they need and transmit them where required on a decentralised network. This removes some of the inefficiencies of traditional international trade.

But Treat said understanding how these investments will benefit banks financially is difficult. “As we move into production implementations, bank executives will need a clear roadmap for how and where to rethink their strategies and redesign their operating models.”

Blockchain could make it possible for investment banks to share a database of transactions, customer information and other reference data. This could reduce the cost of completing transactions because all parties will be able to connect to the same secure and tamper-proof digital ledger to verify transactions.

Read more about blockchain

  • UAE bank becomes the latest to test out the potential of blockchain technology for improving financial services processes.
  • A global banking consortium, including Barclays, Royal Bank of Scotland and HSBC in the UK, has completed cloud-based tests of five different blockchain technologies.
  • 2016’s Sibos event had one word more than any other reverberating throughout Singapore’s Marina Bay conference centre: blockchain.

“By replacing traditionally fragmented database systems that support transaction processing with a distributed ledger system, banks can reduce or eliminate reconciliation costs while improving data quality,” said Accenture.

This will cut the cost of middle and back-office processes. For example, the report said finance-reporting costs could shrink by 70% through a shared source of verified data, and compliance costs could drop by up to 50% due to the improved transparency and auditability of transactions.

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