Blockchain making giant strides to change the face of worldwide banking
Blockchain technology, which holds the potential to reduce banks’ business operations costs worldwide by up to 50 per cent, is increasingly disrupting the region’s banking sector, say experts.
The technology is an online, encrypted database that allows multiple parties to have real-time access to transactions related to documents, shares, financial products and digital currency.
“Blockchain holds the promise of bringing greater efficiency and transparency to the banking industry, for instance, allowing cross-border transactions to be made in real time, and money to be exchanged at the speed with which information moves today,” said Motasim Iqbal, head of transaction banking at British lender Standard Chartered UAE.
The global financial services industry spends about $1.7 billion per year on blockchain as banks and other financial institutions start to roll out commercial distributed ledger technology, the US research firm Greenwich Associates said in a report in June.
About 60 per cent of the UAE’s chief executives expect to invest in blockchain technology this year, while more than 70 per cent of global banks are experimenting with permissioned blockchain, which allows the appointment of a group of participants who are given the authority to provide the validation of blocks of transactions, according to the KPMG study.
The Central Bank of the UAE has also announced a joint project with the Saudi Arabian Monetary Authority to use blockchain to issue a digital currency for cross-border transactions.
Standard Chartered, which is working with clients to bring new financial capabilities to the market, has signed a deal with Siemens Financial Services and digital trade provider TradeIX to carry out an industry-first client pilot to create an end-to-end blockchain-based smart guarantees service in trade finance. This will transform the traditional bank guarantees business and fully digitise the process.
“We believe this technology can be helpful to improve security, efficiency and overall simplification of processes in the industry,” said Mr Iqbal.
“We are focusing on blockchain technology’s trade and cash applications. We have been engaged in a number of projects and initiatives to use this technology to improve the experience and efficiency for our clients and industry.”
UAE is a key market for Standard Chartered and thist project is in line with the Emirates Blockchain Strategy 2012 launched this year to transform 50 per cent of government transactions into the blockchain platform by 2021.
However, service providers feel that regional banks need to adapt to fully take advantage of blockchain disruption.
“Its [blockchain] main aim is to eliminate all intermediaries, add transparency, security and reduce costs. It will certainly impact traditional ways of banking.
“But countries like the UAE and Saudi Arabia have already started the work, regional banks need to transform to stay relevant in the new space,” said Rasheed Al Omari, principal business solutions strategist for South Europe, Middle East and Africa at VMware, whose parent company is Dell Technologies.
VMware providwa infrastructure to enterprises to adopt blockchain technology at reduced costs. Through its new project Concord, VMware is poised to help businesses harness blockchain technology.
Worldwide spending on blockchain is forecast to reach $11.7bn in 2022, according to an International Data Corporation report.
“Blockchain, with its peerto-peer networking model, enables near real-time settlement models for most types of financial transactions, which could eliminate counter-party risk, free up capital and radically reduce transaction costs,” said Jeroen Schlosser, managing director at data centre provider Equinix Middle East and North Africa.