The traditional banking sector is seeing its business model questioned on all sides by the many start-ups that offer innovative digital banking services that are more efficient and less expensive for end customers.
In this context of constant questioning, blockchain technology represents either an opportunity for banks or a threat for this ancient system.
Indeed, the primary role of a bank is to be a trusted third party, by exercising control over all financial transactions. The blockchain, on the other hand, offers the possibility of guaranteeing trust while decentralizing it, in a faster way and with total security. Therefore, we understand that the survival of the model is at stake and that the banks must take advantage of this technology which will most certainly disrupt their sector.
Highlighted in the media via crypto-currencies and more particularly bitcoin, blockchain technology is full of other possibilities and applications, hence the interest it has aroused in all sectors. The blockchain is based on four pillars: the decentralization of data, security provided through cryptography, transparency and autonomy.
For each new transaction (or action) an encrypted block is created which contains the related information. This block will then be added to the existing blockchain. The system is such that it ensures the history of previous transactions, the validity and integrity of the information. Anyone can then view or participate in the transaction validation process. This makes it possible to have a system that operates without a trusted third party, in a decentralized manner.
For the sector, given the many exchanges between players and the complex administrative processes induced by banking cooperation mechanisms, the challenge is to increase the profitability of activities by reducing transaction times and simplifying processes. Several tools could respond to its problems:
First of all, smart contracts, these computer protocols which automatically execute the terms of a contract when the required conditions are met (terms of payment respected, receipt of documents necessary for the investigation, etc.). They would allow players in the banking sector to enter into a commercial relationship without the need to first trust each other, without a third authority intervening.
For example, HSBC and ING recently issued a letter of credit for the transaction of a soybean shipment within 24 hours compared to 5 to 10 days usually, through a smart contract. The blockchain has made it possible to retrieve all of the necessary data and documents quickly, simply and securely.
The Ripple arouses the enthusiasm of banking institutions. Why that ?
Quite simply because the ambition of XRP (acronym for the Ripple token) is to become a universal compensation currency, making it possible to streamline and simplify inter-currency transactions carried out in Euro or US Dollar for example. But the strength of Ripple is above all the support of big international names. Indeed, the Ripplenet network, competitor of Swift, now has more than a hundred customers, including some big names such as: Santander, UBS, Crédit Agricole, BBVA, American Express.
In addition, several large banks (UBS, Crédit Agricole, HSBC, Bank of America, Santander, and Standard Chartered, etc.) have initiated POCs and integrated Ripple as part of ambitious pilot projects.
These experiments should therefore be followed with attention.
Is confidence in a technology possible?
Ironically, the blockchain, which was born out of mistrust of players in the global banking ecosystem following the subprime crisis, now offers these same players extremely important prospects for innovation. Indeed, we can see that the applications are multiple and that many are in the experimentation phase.
Let us recall all the same, that today most of the tests are still in the state of POC (proof of feasibility) and that it will be necessary to pass the course of industrialization so that one can speak of democratization.