Blockchain is Coming, but It’s None of Your Business…Yet

For most banks under the $20 billion asset threshold, blockchain technology—the distributed ledger—will be a tool like every other technology tool. Banks under that size will be provided that tool by established providers or very large institutions and the tool itself will enable typical banking businesses like extending credit, payments and wealth management.

While there is a ton of argument about the validity of the distributed ledger as a tool that enables currency that is untethered to a government or regulation, there is widespread belief that the technology behind the currency itself can carry value and be a boon for banks. It is useful because blockchain technology is enables faster, cheaper and fully transparent transactions in near real time.

Blockchain has potential to carry property deeds, stocks or insurance. Many banks have been skeptical about the technology because of the speculative nature of the cryptocurrency market and the dubious ethics of some of the folks running that market. But now many banks are starting to see it as a solution for quicker, cheaper transaction options.

JPMorgan Chase and the National Bank of Canada announced a debt insurance blockchain test. They believe that they can move debt insurance cheaper, faster and more securely on the distributed ledger, and they are doing a year-long test to find out. If that test works, the platform will have faced many challenges and presumably overcome them. It will have to get multiple regulators to sign off on it, it will have to integrate old systems’ data with the new platform, and it will have to prove that this new technology is actually superior to old systems.

Many banks under $20 billion can and will use it when it is rolled out by a reputable provider. So don’t worry too much about blockchain for now—you will be using it when it has been developed by a much larger institution with the capacity to invest in its trials. One important part of that process will be creating shared protocols. Right now, there is no one blockchain, and there is no one common language where one chain can talk to another. That will probably need to change if it is to become ubiquitous.

There are exceptions for banks below $20 billion
When you are a bank that is a specialist in a particular line of business, you should watch the enablers of that specialty with keen interest. If a bank makes 80 percent of its profit through commercial real estate lending, for instance, that bank should be looking at anything that enables better, quicker, easier service, better pricing, or cheaper production. Adopting the technology that gets the bank in front of most competitors will eventually increase potential for growth, profitability and market share.

It doesn’t matter if that technology is Statistical Analysis System (SAS), or on a distributed ledger, someone in the bank should be trying hard to be the second adopter of the technology that will make the bank so much better at what it does well. That is when a bank should care about blockchain—when it is proven enough to not to be a nightmare to your bottom line or your employees, and provides a competitive advantage in an area that really counts.