Blockchain Tracker: Cost-Saving Opportunity

As more banks, industries, companies and even retail brands take on and use blockchain technology in their business, there are the enhanced and innate elements of efficiency and security.

“A common point of view is that the key benefit of blockchain tech is that it enables trusted and secure (or other transactional data) exchange of information between two parties without a need for trustee or other type of intermediate actor,” said Infinite Peripherals’ Senior Director of Payment Technology, Andrey Tikhonov.

But blockchain has also become a tracking mechanism, more so a cost-cutting measure for a variety of reasons. Walmart added it to track pork in China and produce in the U.S., while other companies are using it to track wine and diamonds. In the banking industry, blockchain may lower costs in interbank wire transfers, and more so when it comes to the technology confirming trusted parties and security, warding off other risks and costs. Other industries like home loan financing process might benefit from blockchain technology — according to Synechron’s estimates — by saving about $177 million on a loan book of $97.7 billion for a typical lender. Similar savings may be achieved for governments putting land and title registries on blockchain.

“Blockchain has tremendous potential in supporting greater adoption and use of mobile payment solutions, such as Android Pay, Samsung Pay and Apple Pay,” said Kristian Gjerding, CEO of CellPoint Mobile, a mobile solutions provider and host of a Travel Innovation Hub focusing on blockchain-support products/services for the travel sector. Gjerding noted the current sentiment around consumers’ concerns about privacy and security is a stumbling block to wider adoption of mobile payments and digital wallets, such as Android Pay, Samsung Pay and Apple Pay. Citing Pew Charitable Trust survey data, he added that 70 percent of Americans worry about identity theft or losing funds if they use mobile payments instead of plastic cards or cash.

And that security is indeed a concern and need for multiple parties.

“At present, banks incur costs during their confirmation and settlement processes when processing deals like foreign exchange trades, but blockchain technology could allow them to simplify this process and complete deals more quickly and transparently,” said Rahul Singh, head of financial services at HCL Technologies. In addition to lower operating costs, this will reduce the ‘settlement risks’ and hence capital involved in that transaction. The multiplier gains are much larger than the reduction in costs.”

Many experts are indeed optimistic but say it’s still going to take time to prove blockchain’s true effect as it related to cutting costs.

“It may take a decade before major industries will see the pay-off,” said Tikhonov. “This is due to the cost it will require to implement and spread across all channels. It is also important to understand that this technology is rather new and does not have major driving factors such as legislation and regulation.”

The question is, if costs are brought down by blockchain technology, what about revenue?

“Obviously if your savings under focused beta testing proves to be 20 percent plus, this also is added revenue,” said Jim Angleton, president of Aegis FinServ Corp. “We hold hope that once utilized under conventional uses and proficiencies, it should yield higher savings and lowering operational cost centers. Again, blockchain has certain vulnerabilities that must be overcome prior to open enrollment.”

Other experts like Matt Shaw at Synechron Business Consulting agree that blockchain can help firms to positively impact their revenues specifically by minimizing or eliminating fraudulent activity.

“Trade finance fraud costs businesses an estimated $14 billion a year globally, and blockchain could eliminate 100 percent of the fraud for those on the chain,” said Shaw. “Blockchain also has the potential to open up markets to new investors and greatly increase transaction volumes due to decreased friction.”

Tikhonov at Infinite Peripherals doesn’t fully agree. In fact, he’s skeptical about making a blanket statement that revenues would indeed improve.

“Cutting costs may result in increasing the revenue, but it may also not,” said Tikhonov. “This is one of the questions the financial industry has to find an answer for. Blockchain technology is on every entrepreneur’s and investor’s radar. Hundreds of proof-of-concept (POC) projects are happening in multiple industries ranging from person-to-person money transfers to micropayments. Overall, in many industries where security is a major factor, Blockchain is perceived to be the solution.”

But regardless of the reason a business adds blockchain technology, experts say there will be strides in this coming year.

“2017 will continue to be a year of blockchain experimentation, and while we are likely to see the rise and fall of some blockchain consortiums, one trend that will remain is the appetite for banks to work together and leverage blockchain accelerators to run proof of concepts or controlled pilot programs,” said Shaw at Synechron.

Tikhonov agreed that these strides will show up in a variety of industries: “We will see more POC projects, probably some successful endeavors and many failures. The key is to understand that this technology is very promising and every technology company should pay close attention to it.”

That we will, indeed.


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