Banks: The roadmap to blockchain

The following is a guest post by Marika Lulay, CEO of GFT, a provider of technology to the financial sector.

 

Marika Lulay

Blockchain is quickly becoming one of the most widely used buzzwords in the financial sector with seemingly limitless applications across countless industries. With good reason, too. Distributed ledger technology, or decentralized databases such as blockchain, accelerates processing, slashes costs and greatly reduces fraud risk. With the current premium placed by the general public on cryptocurrency such as Bitcoin, many are looking at blockchain solely as a way to service this new demand. However, blockchain technology offers much more than advancements for bitcoin.

This begs the question — if it’s not just about bitcoin, what is blockchain?

Distributed ledger technology, or DLT, is a special form of electronic data processing and storage, and the blockchain system is a kind of DLT. For example, cryptocurrencies are usually an instance of a blockchain, and blockchains themselves are an instance of distributed ledger technology.

At its core, a distributed ledger is a decentralized database that allows users of a network to share, read and write permissions. Unlike the centrally managed databases currently in place in most banks, DLT networks do not require a central authority to make new entries in the database, meaning the participants themselves can enter new data at any time. The process ensures all participants have the latest version of the database.

Distributed ledger technology such as blockchain allows for the the opportunity to rearchitect the entire financial industry. The current landscape of many banks with many individual ledgers will transform into a simpler system of many banks with fewer unique ledgers.

This gives obvious pause to many of the industry behemoths currently in control of the landscape, many of whom have been reluctant in initiating a digital transformation of their institutions. In order to navigate this newly constructed terrain, these banks will need to partner with industry experts who have the roadmap in hand.

How many more miles until DLT

For banks, blockchain now provides solutions which were not possible with conventional technologies, including advance invoices and smart contracts. As such, they as missing out on significant real-world cost savings and risk minimization.

Blockchain solutions revolutionize the time-consuming, formerly manual processes in the financial services industry. Banks can optimize the current manual processes for the settlement of securities transactions, such as equities and bonds. These strengths are extremely attractive to banks — an overwhelming majority of banks are burdened with prohibitively high costs for maintaining or replacing legacy core systems and ensuring compliance with regulations.

Some in the industry believe that this transition will take many years (if it happens at all) due to the billions already spent on building and maintaining the banks’ existing technology infrastructures. This is ill advised, as the transformation is already in process. Essentially, the financial industry is at a crossroads — initiate adoption or step aside for those who did.

Destination: blockchain adoption

From a bank perspective, this distributed ledger technology that is blockchain can result in the widespread standardization of applications, services and tools available to end-customers. In fact, early adopters have already enjoyed success implementing prototype solutions to help improve their financial processes, such as digital payments and international money transfers. However, many larger banking institutions in the United States are behind when it comes to the technology adoption necessary to integrate blockchain in a secure and impactful way for their retail customers.

It is important to keep in mind that banks in the US are actually several years behind their European counterparts. For example, prototypes have already been implemented in Germany, Italy, Spain and the UK for various functions, such as lending, payment transactions, cross-border clearing and settlement. By partnering with technology leaders who helped usher in the transformation in these cutting-edge markets, domestic banks have the unique opportunity to shorten the integration period and share the benefits of agile banking solutions to their end-user customers quickly and seamlessly.

Direct ledger technologies like blockchain will raise the overall caliber of innovation in the financial services industry. The finance sector will continue to experience unprecedented, revolutionary changes as direct ledger technologies such as blockchain become more and more mainstream. As banks  learn more about this technology alongside technology leaders, the opportunities provided by blockchain will become more relevant than ever and its widespread establishment of applications will be here sooner than anticipated.

About Marika Lulay:

Marika Lulay brings over 25 years of IT experience to her current role as CEO of GFT. In 1996 she led the entry into the German market of the American systems integrator Cambridge Technology Partners where her last position was vice President for Central and Northern Europe.

Prior to Cambridge Technology Partners, Ms. Lulay spent seven years at Software AG where she held a variety of management roles, including regional head of professional services. Before she moved to Software AG, Marika worked as a management consultant at Diebold Deutschland Ltd.

Early in her career, Ms. Lulay was a founding member and associate of BISTEC Ltd., a software developer for the construction industry. There she managed the R&D Team for CAD. When BISTEC Ltd. merged to become BAUSOFT Ltd., she held the role of Head of the R&D Team.

Ms. Lulay graduated from the University of Applied Sciences at Darmstadt, Germany where she studied Computer Sciences.