Banking 4.0 and digitalization in the financial industry
In financial markets banking 4.0 or simply digitalization has a deep impact. But what does digitalization mean? Is there a distinction between Banking 2.0, 3.0 or Banking 4.0? And what does the term “FinTech”, “RegTech”, “Robo Advisor”, “Blockchain” or “crypto currency” mean?
In the following, we would like to give a brief overview of our views as a leading consulting firm for the financial industry.
The world wide web is accessible to everyone and is also used by almost everyone. This resulted in deep upheavals, especially in the election and above all of the comparison of financial market products of the retail customers. No matter whether FinTech or classic bank: without SEO, i.e. the search engine optimization, active competitor analyzes or the evaluation of influencers, no financial service provider will attract new clients. CVA Services supports especially in the selection of your own provider and delivers excellent content marketing. It makes little sense to increase the budgets for Google Adwords. A clear digital strategy and definition of my conversion or the use of all digital channels is more important – always taking into account the costs.
However, digitization is even more than the world wide web. It starts with the use of paperless transfer forms. SWIFT connections instead of fax confirmations has become a stadard for return-of-investment projects since the last millennium. In the manufacturing industry, the future and digitization is still closely related. In the future your goods will be produced much less locally and then shipped. The product is individually configured and can be produced by a 3D printer on site. We currently see Robo Advisors as a real future technology in the financial industry.
What is blockchain / distributed ledger technology?
Blockchain also known as distributed ledger technology can generate significant benefits in finance. Put simply, blockchains comprise of secure data that can be shared across a network of participants to a process. A block contains records of data, each block is chained to the next block using a cryptographic signature. This allows block chains to be shared and corroborated by anyone with appropriate permissions. This underlying technology can be used to transform ledgers using new tools to incorporate digital signatures, contracts and other new tools. A distributed ledger is essentially as asset database that can be shared across a network of multiple sites, geographies and institutions. The assets can be financial, legal, physical or electronic.
Use cases for Blockchain
Typical use cases for blockchain in capital markets include clearing and settlement of trades, syndicated loans, automation of corporate actions, collateral management and a safer (less prone to fraud) transfer of physical commodities.
Clearing and settlement of trades – record immutable and secure versions of each transaction sharing data across all custodians, banks and institutions, reducing disputes and time taken to settle trades.
Syndicated loans – the automation of smart contracts and distrIbuting data to all parties of the loan can greatly reduce manual activities such as data re-entry in several different loan systems and reconciliation. These benefits contribute to easier cash management due to speedier settlement, and a reduction of cost where credit lines need to be used while waiting for loans to settle.
Automation of corporate actions – blockchain technology can make the process of corporate action processing more efficient. Corporate action data can be captured and verified in a structured format. When corporate actions change, blockchain can be used to create an immutable audit trail that parties can refer to along the chain to ensure the provenance of the data. Corporate actions are shared as a distributed ledger and can be updated, distributed and modified in a much shorter time.
Safer transfer of physical commodities – a distributed ledger can assure the identify of commodities and reduce fraud from when they are mined to when they are sold (or insured – art, diamonds etc.). It could assign a digital id that can be used to record its travel, transaction history and provenance. This immutable blockchain with data recorded in the ledger can act as a single point of truth.
Cryptocurrencies and many of the technologies for blockchain/distributed ledger are in the early stages, and some problems have yet to be solved before these types of applications can be made available.
The founder of CVA Services created a new Organisation for a distributed ledger, which converts unmargined bilateral trades to EMIR compliant derivatives:
What is FinTech?
Coming up soon: FinTech, RegTech, InsurTech etc.
Update: August 4th, 2017