As the struggle to raise profitability continues, innovations like blockchain could offer investment banks a lifeline, says a global management consulting and professional services company Accenture in a new report.

As with many new technologies, it’s generating much excitement. Some analysts have likened its disruptive potential to that of the Internet, with the power to drive dramatic efficiency gains, save billions of dollars and substantially reduce risk.

But there’s also a lot of hype. So what tangible costs/benefits, business applications and ROI does blockchain really offer?

To find out, Accenture joined forces with top benchmarking firm McLagan, a business unit of Aon plc, to conduct an in-depth impact analysis and make fact-based estimates of the cost savings and other benefits that might be achieved.

Blockchain – a catchall phrase for distributed ledger technology – is a new type of database system which enables multiple parties to share access to the same data, at virtually the same time, with an unprecedented level of confidence.

Currently, data reconciliation sits at the heart of most business models. However, because everyone maintains their own data, the process is beset with inefficiencies, such as the need for different parties to constantly message data back and forth between them to get things done. Blockchain, by contrast, could enable a progression from today’s multiple and sequential data reconciliation models to a much more efficient process in which reconciliation is an integral part of the transactional process.

The opportunity

The long-term opportunity for banks is to repoint key operational, risk and finance systems to blockchain-based, shared data platforms.

This would enable decommissioning of large parts of their process and data infrastructure. While getting to this end-state will take time and multiple iterations, significant potential for cost and efficiency gains should continue to fuel interest and investment.

Although there have been some estimates of the value blockchain could create, we believe capital markets leaders need a more detailed impact analysis to assess  the business case for blockchain. This is especially critical for C-suite executives under pressure to constantly evaluate the potential of multiple emerging technologies. With legacy systems to consider, regulation to comply with and stakeholders to convince, how can you be sure that backing blockchain will deliver the competitive advantage and shareholder value you need?

The research

To fully understand the operational impact of blockchain, Accenture conducted a study in conjunction with McLagan.

A world-class capital markets benchmarking provider, McLagan performs comprehensive financial benchmarking of the largest banks every year. It uses granular cost data sourced directly from the general ledgers of participating banks.

In this study, Accenture mapped McLagan’s aggregated operational cost data from eight of the world’s largest investment banks (based on revenues) against the Accenture High Performance Investment Bank model. This gave visibility into where blockchain is likely to have the most impact across the entire spectrum of front-to-back processes and operating metrics of an investment bank.

The results

Mapping more than 50 operational cost metrics from McLagan’s data against our High Performance Investment Bank model delivered clear indicators. The four examples below are a small snapshot to illustrate typical efficiency impacts with a level of granularity achieved via our proprietary analysis.

•    70 per cent potential cost savings on central finance reporting
As a result of more streamlined and optimized data quality, transparency and internal controls.

•    50 per cent potential cost savings on business operations
Such as trade support, middle office, clearance, settlement and investigations by reducing or eliminating the need for reconciliation, confirmation and trade break analysis as key parts of a more efficient and effective clearance and settlement process.

•    30-50 per cent potential cost savings on compliance
At both a product level and centralized basis due to improved transparency and auditability of financial transactions.

•    50 per cent potential cost savings on centralized operations
Such as KYC and client onboarding due to more robust digital identities and mutualization of client data among participants. – TradeArabia News Service