Blockchain tech could save top investment banks $8 billion a year

LONDON - Blockchain technology could save leading investment banks up to $12 billion (£9.8 billion) a year in back office cost, according to a new analysis from consultancy Accenture and operations benchmarking company McLagan.

A report from the pair, titled "Banking on Blockchain: A Value Analysis for Investment Banks," looks at real-world data from 8 of the world's top 10 banks and estimated that blockchain technology, first developed to underpin bitcoin, could cut operational costs by up to 30%.

That works out at between $8 billion (£6.5 billion) and $12 billion (£9.8 billion), depending on the firm.

The analysis suggests that banks could make huge savings of up to 70% in financial reporting; up to 50% in compliance; and up to 50% in business operations such as settlement and clearing.

Chris Blain, a partner at McLagan, says in an emailed statement: "This joint analysis with Accenture suggests that blockchain technology could significantly change the cost structure of investment banks over the next decade.

"The technology represents a potentially important breakthrough at a time when leading investment banks are looking at myriad ways to rebuild their returns on equity."

Blockchain technology, also known as distributed ledger technology, is a form of shared database originally developed to underpin the digital currency bitcoin. It enables all parties to see the same version of a ledger and uses complex cryptography and group authentication to police the editing of the ledger.

By replacing traditionally fragmented database systems banks use, blockchain-based solutions can reduce or eliminate costs associated with replicating data and improve data quality.

David Treat, managing director for Accenture's financial services industry blockchain practice, says in an emailed statement: "As we move into production implementations, bank executives will need a clear roadmap for how and where to rethink their strategies and redesign their operating models, which is why we undertook this unique study."

Investment banks have poured millions of dollars into exploring the potential of blockchain over the last two years and are now starting to introduce real-world projects based on the technology. A consortium of seven banks, including Deutsche Bank, HSBC, and Societe Generale, announced on Monday a joint project to develop a blockchain-based international trade app. Wall Street clearing house DTCC has also begun working with firms to bring blockchain into the clearing process.

Richard Lumb, Accenture's group chief executive for financial services, says in an emailed statement: "Through this first-of-its-kind analysis of real-world cost data we draw a clearer line under blockchain's value to investment banks. Our goal is to help banks move rapidly from proof-of-concept to production system with blockchain technology, generating real cost savings and improving bottom-line results."

While Accenture and McLagan's analysis points to sizable cost savings, their estimates are below those of Santander, which estimated in 2015 that banks could save up to $20 billion (£16.5 billion) a year in infrastructure costs.