IS THIS A TRANSFORMATIONAL TECHNOLOGY?

The global banking industry is changing as rapidly and decisively as it can keep up with the technologies. And one technology that is emerging fast is that of blockchains, which some believe will do for transactions what the internet did for information.

ommercial blockchain solutions are rapidly being adopted throughout banking and financial markets, dramatically faster than initially expected, according to two new IBM studies. The studies found that 15 percent of global banks and 14 percent of financial market institutions interviewed by IBM intend to implement full-scale, commercial blockchain solutions in 2017. The studies say that mass adoption isn’t that far behind with roughly 65 percent of banks expecting to have blockchain solutions in production in the next three years. So, what is blockchain? IBM’s head of blockchain for Australia and New Zealand, Michael Aaron, says that blockchain is a protocol that comes from the world of mathematical algorithms. Essentially it is highly secure shared ledgers where participants write transactions in near real-time to an unbreakable chain that becomes a permanent record of an asset or transaction.

He says it is the ability to share a ledger and parties agree to lock that transaction down and it can’t be changed. Within a business network you can share the ledger which improves the process and flow between the participants.

It’s like a digital database that each person participating can work on and update. He sees it as protocol or standard to enable businesses to automate their business network.

Aaron explains that IBM, for instance, has a lot of suppliers and if there is a dispute over any link in the finance or supply chain, it could take up to 44 days to address. But with blockchain, each of the participants can see their records and the shared record (whether it be agreement around the terms and conditions of the sale, the type of sales tax, etc) and there is no dispute. Resolution has gone from 44 days to one day.

In a nutshell, says Aaron, it’s reducing any friction within supply chains or business networks that might slow things down.

“Everyone is in agreement of what is in that shared ledger.”

In trade finance, there are many participants and mechanisms to enable trust such as letters of credit, bills of lading. Blockchain has the potential to reduce the number of mechanisms and change the role of some participants in the business network in how they enable trust.

It means players can trust each other directly because they are seeing the same information throughout the life cycle and that makes them more efficient.

At the end of the day there are four benefits: • Reducing disputes, which reduces costs. • Reduced risk as it can’t be tampered

with. • Closed shared record keeping increases

trust within the business network. • It’s a ’tool’ to be able to reengineer practices within a business network.

Another benefit might be in the provenance of goods. Aaron said in China, where food safety is hugely important, Walmart is working with IBM with blockchain and the internet of things piloting the tracking of pork from the pig farm through to the slaughterhouse to Walmart. In South America it is being used