Blockchain: Instead of Why, Ask Why Not?

The distributed ledger technology underlying cryptocurrency is advancing quickly, requiring banks to take the initiative or risk falling behind in the next generation of digital commerce.
Ask a group of bank technology executives what they might have done differently in the past three to five years, and the responses come easily: We could have wrestled with the data monster differently, laid out a foundational architecture sooner, dived deeper into analytics and customer insights, and had a more cohesive business strategy advanced by digital rather than a tactical mobile strategy.
All legitimate, honest regrets. But unless they act soon, some banking leaders could soon be adding one more item to that list — waiting too long on blockchain. The hesitancy is understandable. The rollout of blockchain-based digital currencies during the past few years has produced its share of ripped-from-the-headlines stories reporting on wild price fluctuations and exchange collapses.
The technology underlying cryptocurrency is building undeniable momentum, with the potential for momentous impact on financial services, the world of commerce and society at large. Quickly gaining a reputation, if not full legitimacy, as the “Internet of finance,” blockchain provides the digital ledger that enables Bitcoin, BitShares, Ethereum, Ripple and hundreds of their crypto kin to transfer assets more quickly, reliably and securely.

Blockchain is still new, though. And from conversations we’re having with our clients, it’s apparent that leaders of the cautious-by-nature financial services industry are both excited and apprehensive. Should we make the leap to gain first-mover advantage? Give it a couple more years to mature? Wait for the various blockchain consortia and open source communities to sort it out and bet on the winner? Just keep collecting the float from traditional transactions while it lasts? Hope the dinosaurs will win out and kill this innovative approach from taking root?
We predict banks will generate value from their initial investments in blockchain without necessarily facing the predictable snafus and hiccups on the front lines that typically accompany major technology and process shifts. Through some highly targeted approaches, many of which we are piloting today, banks can learn about and experiment with blockchain (see sidebar for a gallery of blockchain pilots). In this way, banks can better understand its potential and perhaps grab some quick wins in the realms of document exchange, record-keeping, multi-signature and digital asset transfer using smart contracts.

Blockchain's Key Benefits
Blockchain offers financial institutions several important benefits, including:
Enhanced security. Banks work heroically to protect customer and enterprise data, but breaches are inevitable. Blockchain elevates security through cryptography and a tamper-resistant design, while eliminating the risk of a single point of failure. If a breach does occur, its location can be determined and isolated, precisely and quickly.
Simplification and cost reduction. Blockchain can simplify processes in a friction-filled market by removing the need for intermediaries and manual processes. The shared infrastructure can help reduce costs within the bank and at an industry level. Santander InnoVentures estimates that banks can save $20 billion a year by implementing blockchain technology.
To learn more about block chain, please read the full whitepaper, “Blockchain: Instead of Why, Ask Why Not?” and visit the Banking and Financial Services section of our website.

This article was written by Prasad Chintamaneni, President of Cognizant’s Banking and Financial Services business unit, and Lata Varghese, who leads the blockchain consulting practice for Cognizant and is actively helping clients understand distributed ledger technology and evaluate technology providers emerging in the stack. They can be reached at [email protected] and [email protected], respectively.
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