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The Financial Industry is Starting to Embrace Blockchain Technology

Fintech is not only one of the fastest growing industries at the moment, but also the one with the most obvious use cases for blockchain. Blockchain technology has the potential to solve issues in the financial sector by making both internal processes and processes involving multiple parties faster, cheaper and safer. Almost all major banks are experimenting with utilizing blockchain and countless startups are working on innovative solutions to inefficiencies as old as banking itself.

Not only will the implementation of blockchain in Fintech result in increased security for end users, but it will also reduce costs for the institutions, with expected savings between $15-20 million by 2022, according to a report from Santander. Blockchain can reduce a bank’s interaction with parties and intermediaries, reducing costs for maintaining and executing contracts, as well as reducing the cost of interbank (bank-to-bank) transactions for users.

Utility Settlement Coin

UBS partnered with Clearmatics to create the Utility Settlement Coin, a blockchain venture aiming to make interbank currency transfers more efficient. The project has, among others, received backing from Barclays, CIBC, Credit Suisse, HSBC, MUFG, and State Street.

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Big banks are beginning to use blockchain technology

IBM Hyperledger

IBM now offers support for Hyperledger, an open source framework that businesses can use to build their own private or semi-private blockchains. - IBM's blockchain website

Mastercard

Mastercard recently announced support for blockchain-based transactions: "Mastercard Blockchain facilitates new commerce opportunities for the digital transfer of value by allowing businesses and financial institutions to transact on a distributed ledger. Our technology can power multiple use cases and can help take time, cost and risk out of financial flows."- Mastercard

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The main focus of Mastercard's blockchain experiments is to track the authenticity of things such as pharmaceuticals and luxury goods.

ING

Ing Diba also recently started experimenting with blockchain technology to improve privacy and speed of transactions. ING is working on ZKRP, an open source blockchain.

ING has made major contributions to the open source ZKRP solution:

“Until recently, one of the primary challenges for applying blockchain in the banking sector was ensuring that data privacy was protected and at the same time meeting regulatory reporting requirements,” explained Mariana Gomez de la Villa, global head of ING’s blockchain programme.

“While existing zero-knowledge technology has provided us with a way of overcoming that, the main limiting factor is the resource, and therefore cost, that each verification would generate.”

ING’s specific solution has been benchmarked against similar technologies in Ethereum, the world’s largest blockchain alliance, which the bank is part of. The operating costs of ZKRP are much lower than other technologies. - ING

Conclusion

Almost every big financial institution is looking into how they can use blockchain technology for transactions. Most big institutions lack the agility to actually build decentralized applications by themselves so most opt to partner with startups that help with developing the technology or provide some preexisting platform on which institutions can build their own solutions.

What do you think is next for blockchain in the financial services industry? What problems do you have with the banking sector that you think blockchain could solve?