US banks recapitalized faster and secured more resources than those in Europe after the 2008 crisis, which has enabled them to be more proactive in the area of blockchain innovation, according to an article by Reuters.
The article supports its claim by highlighting the greater number of patents for blockchain-based products that US banks have filed, as compared with European ones. It notes that only Switzerland's UBS has filed such a patent to date, versus the "dozens" filed by Goldman Sachs, JPMorgan, Wells Fargo, and Bank of America.
But this is not necessarily an adequate measure of progress. Arguably, European banks have been just as active in exploring blockchain-based products as their US peers, but they've taken a different approach to innovation — one based on collaboration rather than individual projects.Barclays, for example, developed a blockchain-based trade finance solution in September in partnership with fintech Wave.
Santander, a Spanish bank, tested a blockchain-based, cross-border payments app in August in partnership with Ripple, and has invested in several blockchain-based startups. And BBVA's VC fund recently invested in a blockchain-based browser. Moreover, Barclays and Credit Suisse cooperated with several other major banks to develop a complex, blockchain-based system for streamlining equity swaps, which was unveiled this week.
US banks' approach to blockchain innovation may backfire. Reuters is likely right to suggest that European banks are struggling to free up cash for individual innovation projects to a greater degree than their US counterparts. And this is probably the reason for the two different approaches — European and US banks have had to develop approaches to blockchain development that are suited to each region's unique economic environment and hurdles.
But a different approach doesn't necessarily indicate that European banks are "lagging" — a collaborative approach to blockchain innovation may actually make more sense. By working together, and with blockchain fintechs, these banks are more likely to develop an industry-wide blockchain standard, allowing the technology to deliver its promised efficiencies. In taking a more siloed approach, US banks could end up back at square one if their individual, patented, blockchain systems cannot easily connect to one another.
Blockchain technology, which is best known for powering Bitcoin and other cryptocurrencies, is gaining steam among finance firms because of its potential to streamline processes and increase efficiency. The technology could cut costs by up to $20 billion annually by 2022, according to Santander.
That's because blockchain, which operates as a distributed ledger, has the ability to allow multiple parties to transfer and store sensitive information in a space that’s secure, permanent, anonymous, and easily accessible. That could simplify paper-heavy, expensive, or logistically complicated financial systems, like remittances and cross-border transfer, shareholder management and ownership exchange, and securities trading, to name a few. And outside of finance, governments and the music industry are investigating the technology’s potential to simplify record-keeping.
As a result, venture capital firms and financial institutions alike are pouring investment into finding, developing, and testing blockchain use cases. Over 50 major financial institutions are involved with collaborative blockchain startups, have begun researching the technology in-house, or have helped fund startups with products rooted in blockchain.
Jaime Toplin, research associate for BI Intelligence, Business Insider's premium research service, has compiled a detailed report on blockchain technology that explains how blockchain works, why it has the potential to provide a watershed moment for the financial industry, and the different ways it could be put into practice in the coming years.
Here are some key takeaways from the report:
- Spending on capital markets applications of blockchain is expected to grow at a 52% compound annual growth rate (CAGR) through 2019, according to Aite Group, to reach $400 million that year.
- Banks and major financial institutions are working both collaboratively and independently to develop blockchain tech. Over 50 major financial institutions are involved with collaborative blockchain startups, like R3 CEV or Chain. And many are investing in the technology on their own as well.
- Putting blockchain to use for real-world transactions is likely not that far off. If working groups' tests are successful, firms could be using it to transact real value as early as the end of this year and we could see widespread industry application within the next few years.
In full, the report:
- Examines the funding increases that are pouring into blockchain
- Assesses why blockchain is becoming so popular and what factors are driving up increased research and development
- Explains in full how blockchain technology work and what assets make it valuable and vulnerable
- Identifies pain points in the financial industry and profiles how various firms are using blockchain to solve them
- Demonstrates the challenges to mainstream adoption and their potential solutions
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