The truth about blockchain and banking

Nov 18, 2022 - 5 minutes min read
Philippe Serafin, Digital Innovation Manager at Sopra Banking Software
  • 45% of consumers are interested in banks’ cryptocurrency investment offers
  • Nearly half of banks are already investing in blockchain technology relative to their payment strategies
  • Real-life blockchain use cases in banking

Blockchain technology may have come to prominence through its role as an enabler for cryptocurrency, but since then, it has taken on a life of its own. Proponents of the technology have suggested a myriad of different use cases, across practically every industry, including real estate, logistics, education and medicine.  

Unsurprisingly, banking has also been named among the sectors ripe to be disrupted by blockchain. However, there’s still uncertainty around the exact role that blockchain plays, and will continue to play, in the banking sector. In this article, we look to clear up some of the confusion and take a deeper look at the truth about blockchain and banking.

Blockchain and crypto trading

Although blockchain and its applications go far beyond cryptocurrency, it’s a good place to get started, given the increasing importance that digital assets hold for both banks and their customers.

In our recently published consumer banking report, made with Sopra Steria and IPSOS, we found a strong appetite for crypto-related products and services to be offered by banks. 45% of consumers are interested in banks’ cryptocurrency investment offers; and 30% said that they would be interested in their bank acting as an intermediary to invest in cryptocurrency.

Naturally, banks have responded in kind, by ramping up their cryptocurrency (and, therefore, blockchain) capabilities. More and more, they are preparing themselves to be able to work within an ecosystem that includes digital currencies like Bitcoin and Ethereum, but also with the advent of more stable projects, like those of Central Banking Digital Currency (CBDC), which is fast turning from idea to reality.

Banks invest in blockchain

Banks’ readiness to work with and incorporate blockchain into their existing practices is evident from how they are investing in the technology.

Per our annual DBX report, where we evaluate banks’ strategic focus and future-readiness in digital banking, we found that nearly half (49%) of banks are already investing in blockchain technology relative to their payment strategies, and that number is set to rise in the coming years. Just 5% said that they have zero plans to invest in blockchain for their payment strategies in the next few years; 18% said they had plans to invest in the coming 12 months versus 28% who plan to invest in the next 24 months.

Clearly, banks are willing to put their money where their mouth is when it comes to blockchain.

Today’s blockchain use cases

Blockchain technology is still sometimes viewed as an innovation of the future, rather than a practical use for today’s banking. And while it’s true that the technology will continue to develop and affect the financial world in new, currently unforeseen ways, it should also be noted that there are plenty of use cases in place now that are having a major impact on banking.

We’ve already discussed digital currencies, but we should also bring up money transfer. In some instances, blockchain technology provides a more secure, less expensive and faster means of transferring money, compared to more traditional payment systems, especially when it comes to cross-border payments. Indeed, on October 11, it was reported that JPMorgan and Visa were bringing together their own private blockchain networks to create a combined solution for cross-border payments.

We could also mention an array of solutions and sectors that don’t directly fall within the purview of banking, but which do affect the wider financial services ecosystem. For instance, digital identity verification, which could see a long-awaited and much-needed digitization thanks to blockchain technology. Or the buying and selling of assets, which with blockchain, could become a faster, more secure and cost-effective process.

The bottom line is that blockchain technology already has a list of proven use cases within the banking sector, and they go beyond cryptocurrency. 

Blockchain and core banking

So what next for blockchain technology in banking? As we’ve seen from customers’ attitude toward digital currency, banks’ investment in blockchain and the growing number of use cases around the technology, it is clearly a trend that is only going to continue.

But does this mean that banks need to rip up their current core banking strategies and focus instead on a blockchain-centric future? This would, we believe, be too hasty a decision. Of course, blockchain should play a role in how banks proceed with their core banking strategy, but it should not be the only factor at play. 

Rather, banks’ decision makers also need to weigh up the value that having a core banking solution that supports blockchain technology will ultimately play in the banks’ future vision and planning. DLT networks are not without their own complications and costs, so taking decisions around them should not be a given.

We’re already seeing that many leading banks are approaching the blockchain-core banking issue by supporting integration with blockchain-based networks. Often, this involves working with vendors to connect core banking solutions to permissioned blockchain-based networks.

By keeping blockchain in mind for future banking strategies (core banking and otherwise), banks’ decision makers can be prepared to incorporate new use cases into their product portfolios as and when necessary. However, by not making blockchain the main focus of future strategies, banks will maintain the agility required to navigate an increasingly digitized industry.