Following my previous blog about Big Data Analytics and Cyber-Security, this second post in my series on payments highlights banks and FinTech hubs as well as blockchain and cryptocurrencies that continue as important priorities for banks.
Banks & FinTech Hubs
Strong growth in FinTech companies and FinTech hubs continues across the globe as banks act to keep pace with market innovation and stay relevant with digital services that engage and delight customers. FinTech companies provide a “sandbox” environment for banks to test new ideas and technologies. By partnering with these companies, banks can reduce their costs and risks of experimenting with new technology, both to make their organization more innovative and to bring new products and services to market.
Yet for banks, are FinTechs competitors or partners? The FinTechs that take away liquidity or revenue-generating transactions from banks, such as PayPal, are clearly competitors. The rest are potential partners. The challenge for banks is to identify and work with those that have viable and relevant technology.
As FinTechs flourish, banks are being forced to industrialize their engagement with them. This, in turn, is fueling the rise of FinTech innovation hubs around the globe—beyond Silicon Valley to London, New York, Sydney, Singapore, Hong Kong and many other cities. Then, governments and investors are also taking notice, providing funding resources and enabling a healthy mix of stakeholders.
A few examples of existing products include Codapay (an online payment gateway) which allows merchants to accept payments from the 97% of adults in Southeast Asia that do not have a credit card by giving customers a range of alternative payment options; Elliptic which uses blockchain technology to securely and transparently transfer and manage a range of financial assets and provides an analytics service on the Bitcoin blockchain for AML; and Payfirma which helps small businesses simplify payment acceptance, increase sales and have better visibility with real time data.
Blockchain and Cryptocurrencies
Over the past year, the dialogue has moved on from bitcoin cryptocurrencies to blockchains, with a focus on distributed ledger technologies and their potential to disrupt banking. Complete disbelief about Bitcoin in 2014 has given way to board-level enthusiasm about “the blockchain” with very active engagement of both newcomers and banks in this area.
Most banks now seem to agree that blockchain technology has the potential to bring about significant disruption in banking and payment processes. A quick survey at the Innotribe session (at SIBOS) on blockchain revealed that many banks are beyond just monitoring developments; they are actually conducting their own proof-of-concepts, with some actively investing in this area. The majority of Accenture’s own conversations with clients at Sibos covered distributed ledger—now a red-hot topic in banking.
Banks are at a stage where they are evaluating the best use-cases (clearing and settlement, reconciliation, data verification and so forth) for blockchain. They are investigating collaboration and teaming opportunities to find the right partners to better understand and invest in the technology.
However, it is clear that blockchain is at an early stage of maturity and there is a long way to go before it is ready for industrial use in financial services. There will be many twists and turns along the way and the industry can expect fast-changing developments in distributed ledger technology and business engagement throughout 2016. The recently announced interbank blockchain connectivity test by R3 this past January is a good example.
A few examples of existing products include Ripple, a real-time distributed settlement system, currency exchange and remittance network developed by the Ripple company, built upon a distributed open source Internet protocol, consensus ledger and native currency. Many banks are considering using it for cross-border payments and to develop a new model for correspondent banking payments; Hyperledger which is a distributed ledger platform tailored for financial institutions to help mitigate settlement risk, prevent trade breaks and cut reconciliation costs; and Bitspark which provides end-to-end blockchain powered remittance services.
My next blog in the series will cover real-time payments and APIs, so stay tuned.