Finance industry needs to gear up for coming blockchain wave

BLOCKCHAIN, which is a decentralised public ledger of transactions that no person or company owns or controls, is the next big thing in the global financial industry.

The importance of this technology cannot be overstated. By its very nature, blockchain can be global and accessible to everyone, much like the Internet on which it runs. The World Economic Forum has listed blockchain in its list of the top 10 emerging technologies of 2016. Blockchain can be used peer-to-peer between individuals as well as by institutions without the need for an intermediary. It can also help modernise legacy banking infrastructure, accelerate settlements and streamline stock exchanges. It also holds the promise of making the financial system more secure, improving regulatory control and eliminating intermediaries, thus reducing transaction costs. In a study in June last year, Santander InnoVentures said that blockchain technologies could reduce banks' infrastructure costs by US$15-20 billion a year by 2022.

It is little wonder that a host of companies, ranging from Microsoft, Google and IBM to Citi, HSBC and DBS, are busy developing applications using blockchain technology, which was first developed to keep track of Bitcoin transactions. Private equity is also not far behind. Some reports suggest that more than US$1 billion has, over the past year, flowed into startups which are trying to develop applications using blockchain for a variety of uses. Closer home, the Infocomm Development Authority of Singapore (IDA) has teamed up with Bank of America Merrill Lynch and HSBC to develop one of the world's first prototype solution that mirrors the traditional paper-intensive Letter of Credit (LC) transaction methodology used for sharing information among exporters, importers and their banks. The blockchain prototype does this on a private distributed ledger, which enables users to execute a trade deal automatically through a series of digital smart contracts.