Internal use of Blockchain ?
• Philippe Meyer
It has been mentioned already by some banks like UBS that they were considering Blockchain technology also for their internal use. Mizuho also announced following this approach a few days ago.
This may be strange but it has to be known that large banks operate as a vast network of more or less separate legal entities. As the financial products got more and more complex and as banks have been trying to rationalize their setups, they have tried to centralize product and risk management in few centers around the globe. But they have still to book the trades with the customers locally because a customer may not wish to transact overseas. Therefore they massively replicate trades between their internal entities.
Replicating trades is not straightforward : it does not mean only to copy the trade details, it also means to have the same interpretation of the trades and have the same life cycle for the original trade and its copy.
To ensure this, banks have attempted to share systems (frontoffice, backoffice, sometimes accounting) among geographies in order to not replicate business logic. Nevertheless data is replicated which means that it has to be reconciled...and this all along the trade's life.
Indeed sharing a global ledger internally between the sometimes 100+ entities could bring a lot savings. Having the same trade representation and life cycle among the different entities which are selling products and managing products will simplify greatly the trade management.
Blockchain technology will develop by steps : it cannot replace a full ecosystem built over decades overnight. Therefore it will start in areas where there is less existing systems. For sure, using this technology internally is much easier to decide than trying to convince a whole industry to migrate to a complete new system. Banks proceeding that way will gradually increase their expertise and knowledge and will be ready sonner to propose this kind of service to their customers.