Blockchain Technology Could Disrupt Everything. Are You Ready?


Large banks are making the news with big bets on blockchain, but regional banks should also be looking at opportunities to leverage blockchain. The financial services industry has moved beyond the proof of concept stage and is now beginning to embrace the transformational potential of blockchain-based digital ID, digital banking, smart identity, smart contracts, trade finance, voting, reinsurance, KYC, onboarding, cross-border payments, loyalty and rewards, and real estate management. Just for starters.

Today, questions about blockchain are both strategic—should I do it or wait?—and practical—if I go in, where do I start?

Smaller banks will have to be smart and focused about time and resource investments. Forming groups—or consortia—can help create the aggregation of abilities and shared risk to take advantage of blockchain, either to do things differently or to do different things.

Three Pieces of Advice

Make choices early. Make decisions about what you want to achieve with blockchain before you put money on the table. Start from a business point of view, and with a business issue you want to solve. You can’t do everything, so make choices early and pick goals that are specific to your business and your bank: grow, create new ways to generate revenue, or cut costs with a cheaper or faster platform.

Start from a place of strength. Choose a specific use case close to your core competitive advantages, something you’re confident could help secure your current market position or open opportunities that you have the resources to pursue successfully.

Don’t go at it on your own. Like the internet, the value of blockchain derives from group participation. Establish a minimal viable ecosystem (MVE) to start. For example, if you want to use blockchain to address syndicated lending, first identify all the abilities required to bring it to market. Identify who needs to be part of that system to make it successful and form a consortium to bring them all together. Start small—that’s what MVE is all about—to validate that it works so you can extract value, then create and run a pilot, and finally expand to include others.

Three Areas of Focus

Get smart. Dedicate a team to study blockchain and develop a proof of concept. This should include a business strategist, a developer who knows blockchain or programing languages like Java, Bison and C#, and a technical architect who can connect dots between technology and the business. Build something beyond a pilot and learn from the effort so you can recognize limitations and identify the best potential opportunities for your bank.

Improve what you’re doing. Pick a specific use case that solves a problem in your organization. Take into account the platform you’re using today, a consortium you’re part of, or how you’re delivering services—and then consider how blockchain can help you be more cost effective or deliver better value in that one area to improve what you’re already doing.

Innovate. Once you’ve identified ways to cut costs or improve on services you already deliver, consider adopting services you don’t deliver today. Blockchain can help you identify new opportunities to help you keep a leadership position or expand a position of strength. If you’re a leader in large loans for farmers, consider the two-part question: How can blockchain make farm loans better, faster or cheaper–and how can it help open new opportunities for an agriculture bank?

The bottom line for bankers: To get value out of blockchain, do it with others. A good first step is to join or create a consortium that supports your goals. Hundreds are already established, for specific use cases, for creating technology techniques and standards, and for redesigning business processes. You can also buy or invest in a startup to bring resources and ideas to a use case you have a strong position for. Either way, focus on one specific goal—the narrower it is, the more likely that people will be passionate and specialized—and able to build an ecosystem that can help everyone improve their business position with blockchain.

The People Who Plan to Change Financial Services


This article originally published inside The FinTech Issue of Bank Director digital magazine.

The world is filled with technology companies hoping to transform the financial industry. Of course, very few of them will. Not all ideas can overcome the substantial hurdles to become major commercial successes. We are not proposing here at Bank Director digital magazine to tell you who will be a success and who won’t be. But we do want to introduce you to some of the entrepreneurs who are proposing to reshape the world as we know it. These are people whose ideas are re-envisioning platforms and processes, people who are simplifying, unifying and upsetting conventional practices. These entrepreneurs really are shaking up traditional boundaries to help us all think about banking a little differently.

Christian Ruppe and Jared Kopelman

They are creating the driverless car of banking.

Using machine learning, this duo, who met as students at the College of Charleston, have built a platform for banks and credit unions to help millennials save without even thinking about it. Frustrated that fellow college students would get on a budget and then abandon it a few weeks later, 22-year-old Ruppe thought he could make the attainment of financial stability easier. Achieving financial health takes discipline and focus, like weight loss. But Ruppe reasoned that technology could help with financial health so it wasn’t so dependent on discipline and focus. If he could come up with a way to automate savings, debt payments and investments, many more people could realize the benefits of compounding over time to create wealth. “We are the self-driving car of banking,’’ Ruppe says.

There are several other automated savings applications on the market that use machine learning, such as Digit and Qapital, but most of those are sold directly to consumers, rather than through a financial institution. Monotto’s private label approach means the customer doesn’t pay for the product and never knows the platform doesn’t come from the bank. Monotto, a play on the words “money” and “auto,” can be integrated into mobile banking or online applications, sending well timed messages about refinancing the mortgage or buying a house, for example. Bear State Financial in Little Rock, Arkansas, a $2.2 billion asset bank, already has agreed to pilot the program. When customers sign up, the algorithm learns from their spending patterns and automatically pulls differing amounts from their checking accounts into their savings account using the bank’s core banking software, taking into consideration each customer’s transaction history. Individuals can set savings goals, such as buying a house or a car, and the platform will automatically save for them. For now, Monotto has received funding from friends and family, as well as an FIS-funded accelerator program. Eventually, the founders envision a platform that will also help you invest and pay down debt.

“You have someone who is solving a problem [for society] but figuring out how to solve it for the bank, as well,” says Patrick Rivenbark, the vice president of strategic partnerships at Let’s Talk Payments, a research and news site.

Zander Rafael

This student lender calculates the school’s ROI to determine eligibility for a loan.

With the rising cost of tuition, students who take out loans end up with an average of $30,000 in debt after college, leading to rising rates of delinquency. But what’s holding the schools accountable?

Alexander “Zander” Rafael, 32, and his team created Climb Credit in 2014 to service student loans based on the returns the college provides its graduates. This places Climb among a menagerie of fintech startups, like SoFi, LendEDU and CampusLogic, all trying to serve the student loan market.

Climb, which funds its loans through investors, stands out because it only works with schools that have a record of landing students jobs that “pay them enough to [cover the] cost of tuition,” says Rafael. In addition to evaluating the student, Climb also assesses the schools. If the institution passes Climb’s graduation and return on investment analysis, then its students are eligible for Climb loans and the school takes on some of the risk of the loan, receiving more money if more students pay them back.

Climb has grown by focusing on more non-traditional learning environments, like coding boot camps, where students invest $10,000 for a yearlong program to learn web development. According to Climb’s analysis, many of these students land jobs that pay up to $70,000. “The return was very strong,” says Rafael. Climb now works with 70 schools, including some two and four-year university programs.

Schools benefit because they can accept students that lack cosigners and who otherwise may have struggled to find a private loan elsewhere. Climb charges an average of 9 percent APR for the loans, but it can range from 7.59 percent to 23.41 percent.

With a $400 million lending capacity, Climb has raised a Series-A funding round of $2 million. But the idea has shown early promise, as Rafael adds that profitability is “within line of sight.”

Ashish Gadnis

Could this man be the Henry Ford of identity?

What if you could unlock trillions of dollars of wealth that could be associated with individuals around the globe? What sort of opportunities would be there for banks and businesses of all sorts? BanQu cofounder Ashish Gadnis saw first hand the problem facing billions of people worldwide who don’t have a bank account when he tried to help one woman farmer in the Democratic Republic of Congo. “The banker said, —We won’t bank her, but we’ll bank you, Mr. Gadnis,’” a native of India who grew up in poverty himself. “They wouldn’t recognize her identity,’’ he says, despite the fact that she owned a farm and had income every year from her harvest. Gadnis and cofounders Hamse Warfe and Jeff Keiser say this is a problem that confronts 2.7 billion people around the world who don’t have access to bank accounts or credit because they don’t have a verifiable identity. Gadnis, who wore a giant cross in lieu of a tie to a recent conference, promises to change all that by providing a way for people to create their own digital transaction-based identity through an open ledger system, or blockchain. Others in their network can verify transactions such as the buying and selling of a harvest, or the granting of a job. He estimates that approximately 5,000 people, some of them living in refugee camps in the Middle East, are using the technology to create a digital identity for themselves that could open up future opportunities to obtain credit and enter the global economy.

It’s not a nonprofit company, as you might think. BanQu is in the middle of a Series A venture capital funding round, and envisions banks and other financial institutions paying for the platform so they can access potential customers. It’s free to users. Like other tech entrepreneurs, he is optimistic about the potential of his platform, perhaps wildly so. “The key to ending poverty is now within our reach,’’ he says. But he has quite a few admirers, including Jimmy Lenz, the head of predictive analytics for wealth and investment management at Wells Fargo & Co. Gadnis has credibility, Lenz says, as he sold a successful tech company called Forward Hindsight to McGladrey in 2012. “When I think about Ashish, I think about Henry Ford. We think about Henry Ford for the cars. But really, his greatest achievement was the assembly line, the process.”

Nathan Richardson, Gaspard De Dreuzy and Serge Kreiker

These entrepreneurs provide anywhere, anytime trading for brokerage houses and wealth management firms.

All three of these individuals have well established backgrounds in technology, including Richardson, who was formerly head of Yahoo! Finance. Now, they are using application programming interfaces, or APIs, to try to make it easier to trade no matter the platform or where you are. Instead of logging into a brokerage firm’s website, Trade It sits on any website and lets you trade your brokerage account inside the website of a publisher or other company, such as Bloomberg. Although many banks have yet to sign up to use the app, the company is licensing the software to brokerage houses and Citi Ventures, the venture capital arm of Citigroup, invested $4 million into the company in 2015. “The thing that impressed us is taking financial services to our customers in the environment they are in, rather than expecting them to come to us,’’ says Ramneek Gupta, the managing director and co-head of global venture investing for Citi Ventures.

Publishers like the app because it doesn’t take the customer outside of their site. Brokerages like it because they can reach their customers anywhere. “If you think about 70 percent of consumers under the age of 40 who trust Google and Facebook more than their financial institution, why wouldn’t you want to put your product there?” says Richardson.

Gupta thinks this speaks to the future of financial services. “You have already seen it elsewhere,’’ he says. “You can order Uber from inside Google Maps.”

Making Blockchain a Reality


FinXTech Advisor, Christa Steele, has created a four part series to educate our community about how blockchain is changing the transaction of digital information, its implications and the players who are shaping this technology. Below is Part Three of this series.

Part One
Part Two
Part Four

Though blockchain is still in early stage development, one of the most notable blockchain applications took place last fall between Commonwealth Bank of Australia and Wells Fargo. An Australian cotton trader purchased a shipment of cotton from a company in Texas and had it sent to China. The blockchain trade consisted of 88 bales of cotton, totaling $35,000. The two banks shadowed the normal trade process utilizing blockchain technology to create verifiable digital records automatically replicated for all parties in a secure network eliminating the need for third-party verification, and to make automatic payments when the shipment reached certain geographic locations. This greatly reduced duplication (checking and re-checking) of payment processing, manual errors and long standing time constraints from being in multiple time zones during the course of shipment.


Typical bank involvement in the international trade process:

bank involvement.PNG

Any bank offering trade services to its customers either directly or through a correspondent bank via a letter of credit can appreciate how cumbersome, risky and redundant this process is today. The international trade ecosystem is ripe for disruption.

Other recent examples include HSBC Bank and State Street Corp. successfully testing bond transactions and UBS and Santander testing a new cross-border payments process.

Here is how cross-border payments work today and how blockchain streamlines the process:


More than 75 banks worldwide have joined blockchain consortiums or formed partnerships with companies such as R3, ConsenSys, Ripple, Digital Asset Holdings, IBM, Microsoft and others. Many of these banks have established innovation labs for blockchain and other related technology initiatives. Some are more serious than others about implementation versus trying to boast an image of being innovative.

I encourage you to read “The Blockchain Will Do to the Financial System What the Internet Did to Media,” published by the Harvard Business Review in March 2017. The title says it all and the article is backed up by some pretty powerful intelligence and market data.

Banks and related financial services companies have already begun patenting blockchain technologies for themselves, including Goldman Sachs, Bank of America and Mastercard.

Last Fall, IBM reported that within four years, 65 percent of banks globally expect to have blockchain in commercial production or at scale. IBM interviewed 200 global banks and reported that 15 percent will be using some form of blockchain technology by end of 2019.

These banks are all focused on lending, payments and reference data (real time information) sharing of transactions across business divisions and between banks.

What are some hurdles to making blockchain work for banks?
With all of the energy and momentum behind blockchain there are also signs of fatigue and plenty of challenges. There are lots of ongoing discussions surrounding this topic. Morgan Stanley’s Global Insights report published last year sums it up best by identifying the ten key hurdles to making blockchain a reality.

What needs to happen to make this a reality?
There are four keys to long-term success:

  1. Continued education about blockchain technology to the public and private sector.
  2. Consensus among and between financial institutions and regulatory bodies.
  3. For individual institutions, a determination of whether if blockchain is a valid solution.
  4. Commercial bank clients begin to adopt the technology ahead of the banks themselves and bank regulatory bodies, forcing all to assimilate to some form of distributed ledger technology.

When do we anticipate certain milestones being achieved?
We are already seeing the achievement of important milestones. Though some may perceive these advances as baby steps, they are still a step in the right direction. While I remain optimistic, I am also realistic and know that something as complex and regulated as the U.S. financial system will take time to adopt this technology. I predict that other industry verticals will make active use of blockchain before the U.S. financial system, but only time will tell.

Blockchain Information Series: Why Blockchain Matters


FinXTech Advisor, Christa Steele, has created a four part series to educate our community about how blockchain is changing the transaction of digital information, its implications and the players who are shaping this technology. Below is Part Two of this series.

Part One
Part Three
Part Four

I recently attended Bank Director’s annual Acquire or Be Acquired Conference in Phoenix, Arizona. Richard Davis, the CEO of U.S. Bancorp, gave the keynote address. As always, Richard captivated the audience with his presentation on not only leadership but where he sees the future of banking heading and why education–internally and in the boardroom–is so mission critical. Two of his slides urged for board education on things such as digital identity, big data, IoT, cognitive computing/artificial intelligence and biometrics/security. On both of these slides, Richard mentioned blockchain. Here is a brief snapshot of one of Richard’s slides about where we are as an industry now and five-plus years from now:

  • Tokenization, EMV, mobile
  • SDA, real time payments
  • ISO 20022
  • Open API
  • Identity Management
  • Distributed Ledger Technology/Blockchain
  • Internet of Things (IoT)
  • Machine Learning

Richard’s presentation affirms blockchain’s relevancy in the new digital world. Keeping pace with these trends is imperative, as the way we operate today is quickly changing due to competition, technology and capability.

Let’s review what we have learned so far about blockchain. We can liken blockchain to an assembly line with a series of blocks, or a database maintained over a network of computers connected via a cryptographically secure peer-to-peer exchange. This information can be stored utilizing a public or private network in which the movement of digital (tokenized) assets are tracked and recorded.

State of Blockchain.PNG

Public networks are accessible to anyone without any restrictions. Data stored on a public network is encrypted and visible to all network parties. The network does not have any intermediaries and instead relies on the individual parties to verify transactions and record data on the network.

Two ideal examples of a public network:

  1. County Records in which deeds of trust are recorded in a highly antiquated and manually-driven process. Today, title reports and other recorded information is readily available to the public. With blockchain, parties can buy and sell an unencumbered real estate asset independent of the need for title company involvement or title insurance. Think about it_why are we paying for title insurance? It’s to insure against errors. As a commercial banker by background, I see huge time savings and process improvement potential in how we source, collect information, underwrite, approve, document, fund and record commercial real estate loans utilizing blockchain technology.
  2. Secretary of State Filings used to establish a new business entity and for securing a new deposit, loan or investment account. Today, new businesses are required to complete a largely manually driven application process riddled with errors. Think about the potential of blockchain if secretary of state filings were hosted in a public network accessible by the banks to integrate directly in to the new account opening process, loan application, funding, boarding and recording process.

Private networks are permissioned networks for those entities that have been granted access. Private networks are limited to allowing only trusted or known parties access to the network. A private network would be financial institutions transacting with one another or on behalf of a mutual client. This private network may also be utilized by regulatory bodies to monitor and/or govern the behavior of the financial institutions.

Each party, whether it is public or private, maintains a key or “address” where the digital asset is located on the network. This key grants restriction or permission to the asset and to the asset transfer.

There are many blockchain use cases being explored in the financial sector. Other examples include, but are not limited, to:

  1. In the debt and derivative markets, providing faster clearing and settlement, increased transparency of counter party risk and reduced trade settlement errors of syndicated loans and repurchase agreements.
  2. Corporate bonds can be automated for not only payment calculation but for payment coupons and redemption.
  3. Automating credit default swaps for processing and monitoring to insure greater transparency and improve post-trade settlement efficiency.

Distributed ledger technology still hosts a lot of unknowns yet to be determined as to how public vs. private blockchains will be utilized and governed in the financial sector. We know that regulation is not going to be eliminated. It will be important to determine what level of human interaction is required as opposed to what can be automated and decisioned in the public or private network. Governance, operational structure and network security are top of mind for all parties involved.

What other applications does blockchain support?

As you can see, Blockchain (aka distributed ledger technology) has expanded far beyond that of the financial sector. Companies such as Kaiser Permanente, Cargill Foods, Toyota and many others have hired teams to evaluate their vertically integrated infrastructures and determine how this technology can enhance client experience, timing to market and efficiency.

For more information specifically related to the financial sector, I encourage you to read FINRA’s January 2017 article, “Distributed Ledger Technology: Implications of Blockchain for the securities industry.” We will explore who the players are, specific use cases and discuss the challenges and opportunities of adopting this technology in subsequent articles.

Blockchain Information Series: It’s All About the Block


FinXTech Advisor, Christa Steele, has created a four part series to educate our community about how blockchain is changing the transaction of digital information, its implications and the players who are shaping this technology. Below is Part One of this series.

Part Two
Part Three
Part Four

I started researching blockchain in the fall of 2015 and became intrigued by the new digital currency called bitcoin. My attention quickly turned to how bitcoin was produced and the ways in which its underlying technology, the blockchain, was being explored in the financial sector. Early use cases were focused on international payments, foreign exchange, bond issuances, clearing and settlement processes. My intrigue has since broadened far beyond that of just the financial sector.

By way of background, I am not a programmer or developer. If you ask my friends and family they will tell you that I often struggle to properly use my (supposedly) universal remote control! My view of blockchain is from the practical application standpoint of how this technology can be integrated. Businesses today, whether you are a financial institution, manufacturer or a packaged goods provider, must be data driven and place business intelligence at the center of operations. There is a lot of low hanging fruit that can be picked from the proverbial fruit tree by utilizing blockchain technology—specifically, efficiency gains, cost saves, reduction in errors and redundancies, improved collection and storage of data without compromising good corporate governance.

For example, today in the financial industry, it is not uncommon for a stock trade to take two to three days to settle, or for bank loan trades to take in excess of 20 days to settle. Think about the amount of manual processes, double and triple entries being conducted today by multiple employees. Using blockchain technology, the average trade takes less than 10 minutes while at the same time effectively mitigating settlement, counterparty and systemic risk. Morgan Stanley Research group estimates the cost savings of using blockchain technology for trade settlements could save the industry in excess of $20 billion.

Who started it all?
First, let’s take a trip back in time and think about 1993. Were you a little reluctant to give up your old reliable friend, the fax machine, for e-mail? In addition to e-mail, we all became exposed to the worldwide web, .coms, social media and more sophisticated mobile phones, to name just a few communication advancements.

For the next several years, security and privacy became increasingly important as cybercrime grew to become a serious threat, and also when cryptography began to take center stage.

In 2008, Satoshi Nakamoto created the first peer-to-peer electronic cash system called bitcoin. Initially, it was all about currency and the ability to securely transact by eliminating all middlemen, costs and complexity of transactions. This was done through a shared ledger and network, cryptographically, using mathematical algorithms to confirm transactions and entities.

Though there are many passionate enthusiasts forging ahead with digital currency, it’s important to understand that this development will take time. It is unlikely we will see a conversion of all U.S. currency in our lifetime. Today, this would require the production of 21 billion bitcoin to replace all existing U.S. currency. However, it is realistic to assume some form(s) of digital currency will prevail at some point in the future.

What is it?
A software that enables data sharing across a network of computers.


Today we are centralized. Blockchain offers a decentralized and distributed system through shared software infrastructure and trust. Users agree to a software protocol that describe the rules for the type, quality and transferability of data in addition to the rules for authorization, verification and permutation.

How does it work?

Let’s simplify this very technical description of how blockchain works by remembering that a blockchain can be likened to an assembly line in an auto manufacturing plant in which each block represents a component of the car, or in this case, computers transferring blocks of records in a distributed ledger. The end product, the car, is the bitcoin or token used to record and transfer the asset.

If you want to learn more, Don Tapscott’s book “Blockchain Revolution” is a great and easy read. You can also visit Kahn Academy online for more bitcoin and blockchain tutorials.

Trends in Financial Technology to Watch


The FinXTech Advisory Group is comprised of several respected fintech leaders from around the globe, and we are honored to have Christa Steele, former CEO of Mechanics Bank in Walnut Creek, California, as a part of the group. During her time with Mechanics Bank, she improved core earnings 43 percent in a single calendar year, doubled the stock price, evaluated three separate and vastly different M&A combinations and in 2015 led the company through its successful sale to a Dallas-based investment firm at a market premium of 1.64x tangible book value. Since then, she has been involved in a variety of initiatives including alternative lending, robo-advisory, mobile/digital payments and blockchain. As a director for a mix of public/private company boards, and as an advisor to two blockchain organization, we asked Christa to share her thoughts on the future of banking and how blockchain will impact financial services. Here are her written responses.

What trends in financial technology should we all be watching?
The banking industry must adhere to the required paradigm shift being caused by digital, mobile, e-commerce and other robust cloud-based technology trends. The traditional bank financial model is under siege by competitors from outside the industry.

Did you know:

  • Online lender SOFI, which started out refinancing student debt and now funds home loans, offers wealth management services for a flat fee of $60 per year?
  • PayPal has more customer money than all but the 20 largest U.S. banks? Did you also know that PayPal’s deposits are not insured?
  • The transaction volume at Venmo, PayPal’s peer-to-peer payment processor, exceeds $1 billion a month and the company is now piloting a merchant program?
  • Mobile banking apps are becoming gamified to enhance customer engagement and attract and retain millennials?
  • Facebook Messenger is processing Bank of America client transactions and is said to be engaged with over 1,000 payment vendors to offer client services that interact through Messenger with a single sign-in process?
  • Over 60 of the world’s largest banks are testing a new technology called blockchain that could single handedly revolutionize how financial transactions are conducted today?

As a former bank CEO, what are some of the challenges that bank leadership teams must overcome during this period of digital transformation?
Each bank is different. Geography, economic trends, client mix (i.e., retail, commercial and wealth management), institution size and product offerings can all be different. My advice is to pay attention and understand how fintech is impacting client acquisition, client retention—and, ultimately, your bottom line. Evaluate whether your current infrastructure and growth strategy meets the needs of a digital world.

Based on your experiences, why is there so much time, energy and resources being spent on blockchain?
We’ve all been using cloud-based technology. I remember when banks were slow to move to the cloud at first because of their initial mistrust. Today we are centralized, but there are endless possibilities about where we go from here, including the use of open access IoT networks, public and a private system of records.


Blockchain is a software that enables data sharing across a network of individual computers. A blockchain describes computers transferring blocks of records in a chronological chain aka a distributed ledger. A simple way to explain this technology is to think about vehicle assembly. Blockchain is the assembly line in the manufacturing plant. The end product is a car, or in the case of blockchain, an asset token.

How do you see blockchain impacting the banking industry holistically?
The impact of blockchain will not only affect banking, but we will see enhanced record keeping and data analytics, streamlined processes, cost saves and efficiency gains. Over the next several weeks, I plan to share a series of articles centered around the technology of blockchain and how it will directly impact the financial industry. I’ll take a look at how it works, why it matters, how to make it a reality and highlight some major players in the space. I look forward to sharing with you all the interesting and innovative movements around this dynamic technology.

Blockchain Makes Digital ID a Reality


The concept of identity has not kept pace in a world of accelerated digitization and data. Nowhere is that more apparent than the cost and friction involved in answering three basic questions simply to engage in commerce:

  • Are you who you say you are?
  • Do you have the mandate you say you have?
  • Can I trust you?

Imagine a world where once these questions are answered the first time, no one else needs to ask them again, or only a subset or new information has to be provided. Archaic identity systems aren’t just frustrating—they’re holding back innovation. The full potential of financial technology and digital global finance, so close at hand, will come about only when a global standard for digital identity does. The technology to make that happen? Blockchain.

A blockchain is a record, or ledger, of digital events, one that’s “distributed” between many different parties. It can only be updated by consensus of a majority of the participants in the system. And, once entered, information can never be erased. With a certain and verifiable record of every single transaction ever made, Blockchain provides the underlying technology to give consumers control over their own portable digital identity.

Blockchain brings digital identity into 2016 (and beyond), opening the full potential of digital innovation to change how we buy and sell goods and services, manage health and wealth, and present our digital identity to the world.

Identity data is everywhere—on all types of devices, applications, private and public networks—but it’s disconnected and doesn’t present a complete, accurate profile of a customer. Plus, it’s personal information: Shouldn’t each person own their identity data and choose what they share and when?

Blockchain is a universal, distributed database that can make it easier for individuals to consolidate, access and reveal what they choose about their own identity data. It’s generally considered more secure, reliable and trustworthy than previous identity solutions because it’s controlled by the user and immutable—protected by a combination of cryptology, digital networks and time stamping on a decentralized network not controlled by any single entity.

Blockchain-based digital ID brings identity into a single record—a persona—that is effectively pre-notarized and authenticated and usable almost anywhere. Individuals control their own ID, adding references and third-party endorsements to verify authenticity, so customers and banks can trust that the content is accurate and secure. It offers an extremely efficient way to capture, share and verify information, and establishes a reliable, secure but relatively easy way for individuals to open a bank account, set up utilities, pay taxes, buy a car—nearly anything requiring personal ID.

Benefits of Blockchain Digital ID
The trust breakthrough: Most customers have a rich online record of what they do, who they know, buying habits, credit—but banks and customers both need better reasons to trust the accuracy, completeness and security of identity data. With customers in control of identity data and a framework for rapid verification, blockchain enables an environment more conducive to mutual trust.

New opportunities: Blockchain provides entry into an ecosystem that increases in value as it expands, providing multiple points of ID verification while creating a more complete description of personal identity. This enables banks to “know” each customer better and offer tailored products that are valued and appreciated.

More loyal customers: Customers typically bear the brunt of inefficiencies, wasting time filling out forms, repeating conversations and gathering documentation. By increasing efficiency, security and accuracy of customer data, next generation digital ID helps make banks more attractive to existing and potential customers.

Improved regulatory compliance: Financial firms spend up to $500 million a year on Know Your Customer and Customer Due Diligence compliance. Next generation digital ID can reduce compliance costs by providing a universal, secure platform for consolidated data collection and records management.

Transparency and better controls: With users controlling their ID and every action an immutable record, you’re less likely to have problems with ID management, theft, security and inconsistency. You can also reduce risks of paper documentation left on desks or digital information with insufficient tracking and controls.

Blockchain-based digital ID fundamentally strengthens identity security and can help ease the burden of regulatory compliance. At the same time, it can improve the customer experience and establish a more solid basis for trust between banks and customers. It also transforms identity data into a rich description of a person, so banks can anticipate customer needs and offer solutions that actually make sense for each customer.

Through blockchain, digital ID is poised to completely change the way we think about and manage identity. It can solve old problems and open new opportunities for banks that are ready to embrace the change.

How Fintech is Improving Back Office Efficiency


The fintech revolution has had a dramatic impact on the financial services industry. From digital wealth management (robo advisors) to automated payment systems, a variety of disruptive technologies have made their mark on the sector. For banks, the rapid development of financial technology poses the threat of losing business to competitors that are quicker to reap the benefits of automating their operations—whether those competitors are other banks that have purchased or partnered with fintech startups, or the fintech startups themselves.

Automating back office processes offers banks a host of benefits: reduced costs, quicker customer response and easier record keeping for compliance purposes. Given the substantial advantages innovative technologies offer in this regard, a wide variety of bank processes are subject to disruption or enhancement through the use of financial technology. An article by sector expert Naresh Kirpalani lays out some of the most notable areas to watch for fintech innovation in 2016, including:

  • Further development of the blockchain as a crucial technology in several key segments of banking infrastructure.
  • Payments as an area subject to further technology disruption and intense competition.
  • Robotic process automation as a means of dealing with processes related to risk and regulatory issues.
  • Accelerated innovation at banks and a focus on taking aggressive steps to outsource legacy IT applications and replace them with interfaced applications using APIs.

Other areas that have seen increasing focus by banks attempting to add efficiencies to their back office processes include automated decisioning solutions and digital signing.

In the United States, fintech upstarts—while pushing banks and other financial institutions to evolve with new technology—have not (or at least yet) massively disrupted their businesses. This may be at least partly due to the readiness that some banks have shown to purchase promising fintech startups, preventing them from posing a long-term threat to the bank’s business.

A market worthy of the U.S. banking industry’s attention in this regard is payment processing in China, where three nonbank players now dominate the sector. The same article cites a Citigroup report that questions whether banks in the U.S. and Europe can take advantage of innovation before fintech firms gain the scale and distribution needed to disrupt them. The study expects increased technology adoption at banks to result in a decline of 40 percent to 50 percent in headcount as they make cuts in their branch networks. “Branches and associated staff costs make up about 65 percent of the total retail cost base of a larger bank,” the report stated. It further noted that automation could help remove “a lot of these costs.”

When it comes to payments, U.S. banks have adapted by offering their customers the ability to pay bills online as one method of accommodating the demands of the Internet age. Nevertheless, the success of digital payments firm PayPal and the cryptocurrency Bitcoin shows that this is a market ripe for disruption. As a result, it is no surprise to find that a number of banks have announced that they are working with or investing in blockchain technology to develop their own next generation payment systems. Along these lines, global investment bank Goldman Sachs, private equity firm Bain Capital and MasterCard have invested in firms using the blockchain technology for applications dealing with the Bitcoin cryptocurrency.

In another major development in the field, IBM announced recently that it has finished a pilot project in conjunction with China UnionPay, a Chinese credit card company, to help share loyalty bonus points between banks via the use of blockchain technology. The system the two firms has developed is designed to allow consumers around the world to swap bonus points from their banks, enabling them to choose the rewards they desire. In the United Kingdom, Barclays is the first bank there to partner with a virtual currency company, Circle, which uses blockchain technology to aid its goal of building a template for borderless currency.

Workflow automation is another innovative process attracting interest from banks looking to use technology to improve their operational efficiency. The attraction of the technology for many banks is the ability of these types of solutions to eliminate paper as much as possible and improve the productivity of their overall operations. A study on the benefits of automated workflow solutions revealed that the majority of the institutions queried believed that the ability to increase approval and routing speed was the most significant benefit associated with an electronic routing system.

Thirty-one percent of the banks and financial institutions included in the survey indicated they “desperately needed” a system that was more automated so they could close more loans. One respondent bemoaned the difficulties caused by combining paper documents with a mostly paperless process, as the lack of electronic signature functionality caused the need for a paper signature form, which at times would get lost.

These concerns have led to the spread of digital signing technology, which has allowed banks to improve the efficiency of their back office processes. With the passage of the Uniform Electronic Transactions Act, and the adoption of electronic signatures by leading banks such as JP Morgan Chase & Co. and the Royal Bank of Canada, the practice has spread widely among banking institutions.

In addition to enhancing efficiency by speeding up account origination and other basic tasks, digital signing allows retail bank employees to access customer records more easily, improving their ability to interact with and service customers when they visit a branch. In an article about the process, JP Morgan Chase’s Alan Varrasso was quoted as saying of e-signatures: “This has changed the way we open accounts, manage workflow and provide checks and balances and controls.”

The ultimate result of the fintech revolution for banks in North America and Europe is as of yet unknown. Will banks be able to adopt cost-cutting and customer-friendly technology rapidly enough to stave off upstart fintech competitors? Or will banking as we know it be disrupted as other industries have been by technological innovation? A bit of both may be the most likely answer. In any case, what can be said is that the technological innovation unleashed by fintech startups has already had major effects on bank operations—and there is likely still more to come as the automated processes introduced by innovators in the sector continue to work their way through the operational infrastructure of banks both large and small.

Emerging Technologies Combat Cybercrime


Anyone following the news knows that cybersecurity is a hot topic across all industries. This is especially true for the financial services industry. With hacks and online fraud on the rise, banks are doing everything they can to reassure customers that their digital information is safe and secure.

And in 2016, this means thinking beyond traditional security measures like a simple username and password combination or a personal identification number (PIN). Digital authentication technologies have evolved beyond passwords, and now include biometric data, like a fingerprint or voice identification, and digital identify authentication, which could combine a user’s device and location, for example.

Banks are increasingly adopting emerging technologies to minimize the opportunities hackers have to conduct illegal activities. Here are three areas that illustrate how banks are stepping up their fraud prevention game through the use of digital authentication technologies.

Federated Digital Identity
One of the biggest friction points for both security teams and users is having multiple identities and logins for different systems. That’s why forward-thinking institutions are exploring the move to a single, federated digital ID that users can authenticate themselves with across different institutions and product lines.

Giving users a single ID provides greater security. Login information isn’t being passed around among multiple systems, so hackers have fewer access points to exploit. Banks are also being forced to comply with increasing cybersecurity regulation as the federal government tries to combat illegal activities like money laundering. Having a single ID would allow financial institutions to quickly access that user’s unique digital token, thereby eliminating unnecessary fraud investigations.

An early sign of this model is USAA’s partnership with the federal government. The goal of the partnership is to allow USAA’s members to access their banking and government accounts with a single username and password. This will serve not only to make things more convenient for the user, but to allow both the U.S. government and USAA to focus their security efforts on protecting just a single digital identity. (USAA’s customer base is restricted to active and former U.S. military members and their families.)

Blockchain Technology
While centralizing IDs and logins makes sense on the front end, banks are looking at the blockchain and distributed networks to provide additional security on the back end. The blockchain acts as a digital public ledger, and the technology was originally designed for bitcoin transactions. Because information on the blockchain isn’t stored on a single computer or server, it removes the risk of a central point of security failure.

Since blockchain technology authenticates users based on a device-specific token, hackers can’t just steal user data from a central server for the purpose of fraudulent usage. The blockchain also facilitates true peer-to-peer transactions, eliminating the need for middlemen who verify ACH transfers, for example. This eliminates yet another potential access point for hackers.

That’s why payment technology companies like Dwolla are turning to blockchain to enhance security. They partnered with BBVA earlier this year to create a real-time payments platform on the blockchain. The idea is to still provide the convenience of digital payments, but facilitated by the Blockchain to provide an additional layer of security.

Biometric Authentication
The next big wave in preventing online fraud for banks might just be biometric authentication technologies. In fact, USAA is in the process of rolling out user authentication with software that recognizes the facial contours of users before allowing them to log in. Since things like fingerprints and facial features are nearly impossible to duplicate by hackers, biometrics could provide even more security than device-specific tokens.

In addition to providing secure access, biometrics take away the need to use other sensitive data for authentication purposes. Things like phone numbers, emails and Social Security numbers wouldn’t have to pass back and forth during the login process, thus decreasing their vulnerability of being hacked.

Banks are forced to walk a finer line than ever, balancing convenience with security and fraud prevention. Technologies like the federated ID, blockchain and biometrics are being recognized by financial institutions as the next wave in fraud prevention. If banks are able to steadily phase these in and fortify potential security gaps along the way, they’ll be able to more effectively keep the bad guys out while keeping the customer experience smooth and seamless.

How Digital Currency Innovation is Disrupting Equity Crowdfunding


crowdfunding-8-24-16.pngIn July of 2014, Facebook acquired virtual reality headset company Oculus Rift for around $2 billion. One of the most successful crowdfunded companies of all time, Oculus raised nearly $2.4 billion on the popular crowdfunding platform, Kickstarter.

Sounds like a great success story in crowdfunding, but here’s the catch: Kickstarter investors saw barely a dime from the lucrative buyout.

That’s because traditional crowdfunding platforms like Kickstarter are middlemen, set up to reward Kickstarter participants with things like tiered promotional items, and in the case of Oculus, early access to or discounts on the product. As it stands now, crowdfunding a startup gets platform investors just about anything except an actual piece of the company.

But that’s all set to change this year. The federal Jumpstart Our Business Startups (JOBS) Act has provisions set to kick in that will allow crowdfunded startups to issue equity directly to their investors. Financial technology companies are ready to move quickly, seeking to leverage digital currencies and innovations like bitcoin and the blockchain to create completely digital stock offerings for investors. Simply put, they want to cut out intermediaries like Kickstarter to provide investor with direct access and greater returns.

Here’s a look at what some of the early leaders in the space are doing, and how digital currency could be a major game changer to equity crowdfunding in 2016 and beyond. […]

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