Research conducted by Greenwich Associates, a firm based in Connecticut has shown that the amount spending by banks and other financial markets on blockchain technology averages $1.7 billion annually. According to the research, the total amount spent by banks on developing blockchain products went up by a whopping 67% in 2017, as banks and other financial institutions aim to harness the benefits of the technology.
Blockchain is the underlying technology of Bitcoin and other cryptocurrencies and is identified alongside artificial intelligence and Internet of Things as breakthrough technologies. Chinese President recently made this point two weeks ago when he stated: “A new generation of technology represented by artificial intelligence, quantum information, mobile communications, internet of things and blockchain is accelerating breakthrough applications.”
DLT Implementation Harder Than Expected
The potential of the blockchain technology is enormous, thus the reason why banks and other financial institutions are looking to reap its benefits. In the report, Greenwich noted that amongst the surveyed banks, 10% admitted having increased their budget by $10 million or more last year for the development of blockchain products.
However, only 14% of them claimed to have already successfully deployed a blockchain solution. The report added that the primary aim for developing blockchain solutions is due to its cost reduction potential. Blockchain has numerous benefits, but banks and financial institutions are more focused on its price reduction property as they look to it to reduce the cost of running their services.
One thing that most banks didn’t know was that implementing distributed ledger technology (DLT) was very hard. Roughly 50% of the interviewed executives admitted that the implementation of the DLT was harder than they had initially expected. This point was made known by the author of the study and vice president of Greenwich Associates Market Structure and Technology, Richard Johnson. He wrote that “More than half of the executives we interviewed told us that implementing DLT was harder than they expected. Nevertheless, more than three-quarters of projects currently under development are expected to be live within two years.”
The banks had to double the number of full-time staff working on the technology, the report added, with these banks slowly losing the payment solution space to fintech companies. According to the research, the banks are focused on developing payment solutions using blockchain technology, as they look to compete with fintech companies in regards to transaction volumes and fees.
The report added that more than 40% of the total consumer-to-consumer (C2C) cross-border payments had been taken over by fintech firms, with an extra 30% and 5% of the consumer-to-business (C2B) and business-to-business (B2B) payments markets also in the hands of these companies rather than banks. These are some of the reasons why they have been investing heavily in blockchain technology, as they believe it would help them catch up with the fintech industry.