B2B Payments

What Banks Stand To Lose By Ignoring Blockchain

blockchain innovation

By now, it’s no secret that if major financial institutions want to stay ahead of the game, they should invest in blockchain startups. Analysts predict the ledger technology to potentially overhaul the way payments are done, to ease cross-border transactions and to provide an extra boost to payment speeds.

That’s why the latest report from technology services and consulting firm Capgemini may not seem so surprising, at least at first. The company published a new report this month that concluded the world’s banks simply cannot “afford to ignore” the blockchain.

But a deeper look into the report uncovers insight into just why that conclusion was made — and no, it isn’t simply because blockchain investment is a trendy move for banks today.

Analysts at Capgemini declared in “Blockchain: A Fundamental Shift for Financial Services Institutions” that the blockchain is the next evolution in the digitization of payments and the next level of payments recordkeeping and security. And the startups that are harnessing this next phase of payments technologies are the ones banks would be keen to watch, the report said.

Specifically, Ethereum should be on everyone’s watch list, according to Capgemini. Ethereum launched earlier this year as a platform that uses blockchain technology, which supports more than cryptocurrencies.

“Ethereum takes blockchain from an interesting financial payment processing opportunity to a new paradigm for financial transaction processing, totally transforming the IT model currency in use by all financial services companies worldwide and beyond,” the report stated.

[bctt tweet=””Ethereum takes blockchain to a new paradigm.””]

Capgemini pointed to other blockchain startups banks should be keeping on their radar, including Ripple and Counterparty.

Many of the technologies in use by these firms envision a way for the blockchain to transmit data and smart contracts, in addition to currency; innovators are eyeing the technology as a way to make international payments faster and make payments in general more secure. But Capgemini also noted that blockchain technology should be on banks’ radars for its potential in trading. Nasdaq, the report pointed out, is already using blockchain technology to manage trades.

The rise in blockchain startups also speaks to the number of use cases for the technology. In other words, banks aren’t the only institutions that will see an impact from blockchain innovations.

[bctt tweet=”The rise in blockchain startups speaks to the number of use cases for the technology.”]

Corporates, in particular, Capgemini said, could potentially use the blockchain to send and receive smart contracts with their business partners, streamline payments to overseas suppliers, strength ID management, secure relationships with smaller players and replace their current payment and transaction processing rails.

This means that while banks would be wise to invest in blockchain startups for the potential they can bring to their own businesses, the rest of the market will find their own potential in the blockchain, and banks will be forced to adapt.

The report’s authors recognize that while some banks are already investing in the blockchain in recognition of its potential to change the entire financial services industry’s way of operation, the technology is young, regulation is inconsistent and the actual impact of blockchain is largely only hypothetical at present.

With this in mind, Capgemini’s report concluded that banks not only should consider taking a proactive approach to blockchain technology (as opposed to a reactive one) but should look to their peers as the tool remains in its infancy.

“In this environment, it seems that some common assessment, collective thinking and sharing of potential opportunities for — and impacts on — banks could be useful,” the report concluded. “While some banks are independently analyzing the potential of blockchain technology, our current point of view is that a common understanding would help all banks develop blockchain solutions more quickly and efficiently.”


Featured PYMNTS Study: 

With eyes on lowering costs to improving cash flow, 85 percent of U.S. firms plan to make real-time payments integral to their operations within three years. However, some firms still feel technical barriers stand in the way. In the January 2020 Making Real-Time Payments A Reality Study, PYMNTS surveyed more than 500 financial executives to examine what it will take to channel RTP interest into real-world adoption. Here’s what we learned.