Financial services companies are exploring the possibility of carrying out faster transactions in cryptocurrencies, and a consortium of seven large European banks has turned to US tech company IBM to create a new trade finance platform based on blockchain technology.
Blockchain is the technology behind Bitcoin and other cryptocurrencies, an open-source network that serves as a digital ledger to facilitate secure online transactions, removing the need for an intermediary.
The banks' new platform is designed to simplify and facilitate domestic and cross-border trade for small and medium sized enterprises in Europe, while helping to increase overall trade transaction transparency, IBM stated on Monday.
William Mougayar, author of The Business Blockchain, founder of the Token Summit and an early stage investor in blockchain startups, told Radio Sputnik that in its current form, blockchain technology can benefit banks and their clients. However, in the longer term, blockchain has the potential to disrupt the financial market.
"Blockchain can streamline the process of setting up letters of credit and facilitating the different steps in the supply chain process. I believe this was orientated toward the small-to-medium [sized] businesses, which are very cost-sensitive. In this particular case, saving costs and streamlining are the main advantages. The supply chain is one of the segments that the blockchain will impact over the next few years," Mougayar said.
"The financial institutions are not going to disrupt themselves, they're not going to recreate new models beneath them. They're going to use the blockchain to support their existing businesses and to support their existing visions and strategies, which means they will look for the blockchain to help them in cost savings and to improve processes, but they will not let the blockchain disrupt them directly."
Eventually, blockchain is likely to disrupt the current form of financial services, because it has the potential to remove the need for intermediaries altogether.
"The blockchain disruption in financial services is going to come from outside of these companies, it's going to come from new players and new start-ups that we have yet to see and that have yet to become big."
In the short term, the growth in blockchain technology will create more jobs, but in the long term it has the potential to remove some jobs traditionally done by banks and their staff.
"First, there will more jobs created to implement blockchain technology, because we're still in the early days. So today, there are maybe 35-40,000 developers worldwide that know how to program a blockchain application or that know the blockchain technologies. So, that's not a big number but that number is going to grow. We're not going to see the blockchain removing jobs yet until these projects are fully implemented, so that will be a secondary effect that will come much later in the evolution of the blockchain, at one to three years down the line and perhaps even longer."
"The blockchain technology challenges that particular status quo and is the technology that allows any individuals or any businesses to conduct the same types of transactions with the same level of confidence, quality and fidelity between those two parties, without having somebody in the middle. So, it's going to disrupt any intermediaries that are in the middle of transactions."