LONDON: The blockchain technology behind bitcoin was designed to do away with banks.
In an ironic reverse, investment banks are now racing to make it work for them – but cash-strapped European players risk falling behind their Wall Street rivals.
Blockchain was developed eight years ago, enabling transactions using the digital currency to be processed and settled on a public network without the need for a third party.
Now banks are seeking to apply it to private networks they run, to save costs by reducing settlement times and automating systems that are still paper-based, like in trade finance.
About 80 per cent of top global banks will have launched blockchain projects by next year, the World Economic Forum (WEF) said in August, describing the technology as the future ‘beating heart’ of the financial sector.
A survey of 200 top global banks by tech firm IBM last month found that 15 per cent will have rolled out commercial blockchain products by the end of 2017.
But there is likely to be a transatlantic imbalance in bringing out such products, given the costs involved in developing new technology.
While US investment banks moved quickly to restructure and recapitalise after the financial crisis, European players are still struggling with cost-cutting and shoring up their balance sheets.
Dozens of patent applications have been filed in total by Goldman Sachs, JPMorgan, Wells Fargo and Bank of America for blockchain-based products, but there is a record of only one being filed by a European bank – Switzerland’s UBS.
“The European banks are cost-focused, whereas US banks like Goldman Sachs and JPMorgan are likely trying to generate revenue, because they’re in different market conditions,” said Simon Taylor, who was in charge of blockchain product development at Barclays for two years until he left in June to co-found London fintech consultancy 11:FS.
“Reading between the lines, that says: ‘we want to profit from this, we want to build the thing,’” he said of American banks.
Taylor said that dynamic was playing out not just in terms of the amounts of investment in blockchain projects, but also in how US banks are seeking to develop their own products while European banks are taking a more collaborative and less aggressive approach.
No leading bank has publicly said how much it has invested in blockchain.
The six global banks approached by Reuters for this story – in the United States and Europe – declined to say how much they had spent.
The WEF estimates a total of about US$1.5 billion has been invested in blockchain by all industries, including financial institutions and tech companies.
The UBS ‘fintech lab’ on the 42nd floor of One Canada Square tower in London’s Canary Wharf financial district does not look much like a bank office. Ideas are scrawled onto walls in pen and Post-It notes adorn a see-through dividing panel.
UBS is regarded in the industry as one of the most innovative European banks. It radically restructured its investment banking arm in 2012 – earlier than most of its European competitors – to focus more on wealth management, but it faces the same cost-cutting pressures.
“There’s constant pressure to deliver,” said the bank’s blockchain lead Alex Batlin, who is leaving for BNY Mellon – which until recently has not appeared very active in its work on the technology but now seems to be on a spending spree, recently advertising 37 open positions on Blocktribe.com, a website dedicated to blockchain jobs.
“I always saw this as a Columbus mission – we go out and look for gold, we don’t know what’s going to happen, but if we do discover something it could be massive and therefore it’s worth investing in,” Batlin said, adding that he was always careful to deliver “shareholder value”. — Reuters