Tuesday 27 October 2020

Treat: Strategic blockchain investments can help
unlock trapped value

Blockchain: Do the numbers add up?

LONDON, May 2, 2017

By David Treat

A new study from Accenture and top benchmarking firm McLagan crunches the numbers on blockchain to reveal just how much investment banks should be banking on this potentially disruptive technology.

David Treat, managing director, Accenture Financial Services Blockchain Lead shares the highlights and looks at how banks can get started.

What’s the big takeaway from Accenture’s latest blockchain study with McLagan?

I don’t think anyone questions whether or not blockchain has significant potential. But in order to move beyond potential to practical application, enterprises, which in this case are investment banks, need to have a road map to help illustrate where blockchain can have the biggest impact. This, in turn, can help them to make strategic blockchain investments that help unlock trapped value in the short-term and over the longer-term.

Our study found that blockchain technology could help the eight banks we analyzed realize savings of at least $8 billion per year, or approximately 27 per cent on a cost base of $30 billion—and that’s a conservative estimate. Annual cost savings could reach as high as 38 per cent, or around $12 billion.

Where do investment banks stand to gain the most from blockchain?

By mapping McLagan’s operational cost data from eight of the world’s largest investment banks against our own High Performance Investment Bank model, we were able to get a clear picture of where blockchain is likely to have the most significant impact.

Processes related to trading execution, trading risk management, cross-product processing, asset liability management and regulatory compliance are expected to deliver the most significant value—greater than 70 per cent cost savings. Finance functions, along with certain risk management processes, could also be fundamentally impacted—with possible savings in the 50 to 60 per cent range. Strategy, research and human resource functions, on the other hand, might see little or no impact from a blockchain implementation.

Potential cost savings aside, what other impacts could blockchain have?

Blockchain will likely reshape—and ultimately, could eliminate—many of the clearing and settlement functions that are in place today. While trading and investment products have become increasingly sophisticated, clearing and settlement processes have stayed the same for decades. With blockchain, what currently takes days to complete could take a matter of minutes.

That would unlock a significant amount of trapped value. Today, investment banks spend an estimated two-thirds of their IT budgets on legacy back-office infrastructure. That doesn’t take into account the billions spent on cost reduction initiatives each year. Blockchain could lead banks to decommission much of that infrastructure and externalize key operational processes. It could completely change the cost dynamics in these organizations.

So, would you say the hype around blockchain is justified?

There is good reason for investment banks to be excited by blockchain. Our research to date doesn’t indicate that blockchain will disintermediate or replace current industry players, but it’s poised to have a powerful impact. Our commitment is to move beyond the hype to helping make blockchain a reality for our clients.

What can investment banks do to prepare for blockchain?

Many industry leading banks are already making significant investments in blockchain. This research was intended to help identify where they could realize the most value. In addition, they need to fundamentally rethink how they approach data—everything from data center requirements and storage to networking and security.

Some questions to ask might include: What is feasible over the short and long-term? Are we plugged into the right industry groups and consortium to help shape how blockchain standards will be developed? Do our investment plans match up with how the technology is evolving, and does it consider the significant potential that may be unlocked by this technology in the future? Do we have the human and technological resources we need to support a blockchain-based operating model?

Tags: banks | Accenture | Blockchain |

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