Truth or Myth: Has Blockchain Failed to Deliver in Banking?

A few years ago, there was a perception that blockchain was a panacea for every problem in the banking industry – triggering a wave of euphoria about its future potential. Fast-forward to today, and the industry’s airwaves are quieter, albeit punctuated by frequent announcements of major new blockchain investments and use cases. So, are hype and skepticism hindering the adoption of blockchain technology in banking? If so, why? And what role is blockchain playing in the digital transformation of banks today?

Blockchain in banking

To discuss these questions and more, R3 Cloud Partnership Lead Amy Fisher hosted a fireside chat with Ben Weiss, Banking Specialist, Worldwide Financial Services at AWS, and Carlos Arena, Head of Banking at R3. The wide-ranging discussion covered three main areas. First, how blockchain fits into the industry-wide changes underway in financial services. Second, a drill-down into use cases, particularly newer ones. And third, how to overcome challenges to blockchain adoption, and what this space might look like in the future.

Blockchain in banking is focused on trust and automation

A key theme that emerged was that blockchain and cloud are viable and high-potential options for core banking infrastructures, as underlined by the industry’s growing number of successful use cases leveraging these technologies. As AWS’s Ben Weiss explained, blockchain’s attributes of immutability, verifiability and traceability make it ideally suited to banking, and initially prompted a unfocused approach to use cases. But now banks are being much more selective. “What we’re finding is that customers are now narrowing in on use cases that actually are coherent and makes sense in the context of blockchain,” said Weiss. “When you’re really about a multiparty transaction, when you’re thinking about a trust factor differential between the different parties on that network, when you’re thinking about networks where you don’t even necessarily know the counterparties, there’s an enormous amount of opportunity and value in blockchain.”

Weiss continued by highlighting that this focus is seeing banks increasingly target blockchain use cases at the heart of their business, including in middle- and back-office automation – a trend accentuated by COVID-19. Carlos Arena, Head of Banking at R3, said this has been accompanied by a shift from technology-push to business-pull. “What’s exciting now is that the business is very much involved, pushing their teams – in compliance, in infosec, in technology – to actually move on an application that will solve many inefficiencies through their systems, through the middle- and back-end, to ensure that this is a production-ready solution and application. It’s been five years, a lot of training, a lot of coaching. And now it’s the clients who are coming to us saying, ‘Teach me how to run a blockchain platform’ – which is extremely exciting.”

When it comes to blockchain and financial services, here’s what our audience said…

The session also features two audience polls looking at the growing industry momentum behind blockchain. Asked which use case areas they saw as having the greatest potential value, attendees pointed to cross-border payments followed by tokenization of securities, and then core banking modernization, securities trading & settlement, trade finance, and interbank reconciliation & data exchange. When polled on their primary approach to adopting blockchain in their bank, the audience’s strong preference was for joining existing blockchain networks such as those underpinned by R3’s Corda rather than focusing on building their own networks and applications.

To get the full insights from the one-hour discussion and to see for yourself why blockchain still has a role to play in the digital transformation of the banking industry, click here.