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Blockchain and disruption in the financial world: Will banks survive?
| 4-3-2019 | Carlo de Meijer | treasuryXL
The world of banking as we know for many years is in a fundamental transformation process, triggered by new technologies. The most important is blockchain that is said to fundamentally change the way financial transactions are handled today. It is forecasted that this technology will have significant consequences on how traditional banks do business in the future, enabling new business models, deliver new value propositions and solve longstanding challenges, with the well-needed transparency and security in transactions that nowadays involve multiple parties and large amounts of data.
Though this technology is currently still at a nascent stage, blockchain is proclaimed to be a game-changing, disruptive innovation that holds the capability of completely shaking up the landscape of banking in the coming years. Others even proclaim that blockchain will make banks (entirely) obsolete.
Questions that arise are: how will blockchain technology drive disruption in the banking industry, what are the main areas that will be touched, and how will the banking ecosystem look like in say five to ten years from now.
But what is disruption (not!)?
But before answering these questions, it is important to agree what disruption really means. Since the word disruption was launched in the nineties this term has been used for so many things that it has lost their original meaning. Everything that is ‘new’ is described as disruptive and/or innovative.
It was the US professor Clayton Christensen who introduced the idea of disruptive innovation in 1997. According to him disruption means “any innovation that transforms a complicated, expensive product into one that is easier to use or is more affordable than the one most readily available”.
Disruption has three components: responding to competitors effectively; identifying new growth opportunities; and, improving understanding of what customers want.
“A disruptive business is likely to start by either satisfying the less-demanding customers or creating a market when none existed before. So, when mainstream customers start adopting the entrants’ offerings in volume, disruption has occurred”.Clayton Christensen
It is however very difficult to know in advance what real disruptors are. The process is often very long. It could take years before the true effects of disruption are presenting themselves in the market.
Though the classic examples of disruption involved technological advancements, disruption is not all about technology. Not every successful business or product needs to disrupt. But disruption is any time organizations find a more efficient, better way of doing things that attracts customers.
What makes blockchain (so) disruptive for banks?
What makes blockchain so disruptive for the banking industry? Why is this technology forecasted to revolutionising the way banks are nowadays doing business? The answer to this question lies in the three specific in-build properties of a blockchain: Decentralized, distributed and Immutability. These differ completely from those of banks that are centralised organisations.
Decentralized network
Blockchain operates on a decentralized network, that is acting on a peer-to-peer basis. It handles all operations similar to a bank, but without any central authority that monitors all data. So it potentially cuts out the middleman, giving back the power to the owner of the assets (i.e. data or tokens carrying some financial value).
All information is stored across its network via blocks. These blocks, that are time-stamped and linked together with all past and current transactions, are permanently recorded and consistently reconciled and updated in a cryptographically secure way. By storing data across its network, blockchain eliminates the risks that come with data being held centrally.
Distributed ledger
A second property of blockchain is the distributed ledger, that allows sharing of a ledger of activity – such as arbitrary data or virtually anything of value between multiple parties. What makes blockchain so important is its ability to automate trust and transparency among all parties using it. Because the ledger is distributed among all transaction participants, it exists simultaneously in multiple places. Each of the computers in the distributed network maintains a copy of the ledger to ensure transparency and also prevent a single point of failure and all copies are updated and validated simultaneously. This makes it extremely difficult to manipulate entries or tamper with the data without the other parties noticing.
Immutable records
A third unique property is its immutability. By design, blockchains are inherently resistant to modification of data. All blockchain networks adhere to a certain protocol for validating new blocks. No changes can be made once the system is set with the initial standards. Once recorded, the data in any given block cannot be altered without the alteration of all the subsequent blocks, which requires the consensus of the network majority.
Read the full article of our expert Carlo de Meijer on LinkedIn
Carlo de Meijer
Economist and researcher
Treasury Management & Corporate Finance
| 28-2-2019 | Vrije Universiteit Amsterdam |
The RT program starts 1 september 2019
The post-graduate Executive Treasury Management & Corporate Finance programme combines two finance disciplines: Treasury Management and Corporate Finance. These disciplines largely overlap and are inextricably connected.
This post-graduate executive programme has now been running for more than 20 years at Vrije Universiteit Amsterdam. It is a unique programme both in the Netherlands and abroad.
As from September 2018 the programme will be delivered entirely in English to appeal to the increasingly large community of non-Dutch-speaking finance professionals in the Netherlands.
Participants successfully completing this post-graduate executive programme will be awarded with the title of Registered Treasurer. This title is well-known and widely recognized within the treasury professionals’ community.
The curriculum consists of 6 modules, each of which covers a clear sub-discipline in Treasury Management and Corporate Finance. Each module comprises approx 8 lecture days on Thursdays (from 15:30 until 21:00). It is an intensive and efficient 18-month programme.
The post-graduate Executive Treasury Management & Corporate Finance programme is a strategic partner of the Dutch Association of Corporate Treasurers (DACT). Partners in the programme are KPMG, Orchard Finance, PwC, and Zanders Treasury & Finance Solutions. Senior affiliates are programme lecturers.
TESTIMONIALS
‘The program offers a lot: interaction with good teachers in a small setting, useful theoretical frameworks and a diverse network of fellow participants and alumni. Highly recommended to everyone working in the Corporate Treasury field, the RT title is a must-have for your professional career.’ (Emile Raymakers – Group Treasurer, Nutreco)
‘I have experienced the RT program as value added and refreshing to my knowledge and experience. Moreover, the program has a broader scope than pure Treasury Management, and offers a good learning experience in the areas of Corporate Finance and Financial Risk Management as well. The fairly small group allows a personal approach, permitting input from own experiences. This connects theory and practice. To summarize: a good investment for me and my employer!’ (Michel van Baardewijk – Treasurer, Vestia)
‘A fine academic program for corporate and public treasurers, their bankers and their consultants.’
(Ed de Bruin – Equity Sales Specialist, ABN AMRO Bank)
‘The ideal basis for the treasurer of the future.’ (Steven de Klein – Cash & Currency Manager – Royal Boskalis Westminster NV)
CONTACT
If you have any questions about the program, please feel free to contact us or visit our website.
Program secretariat Treasury Management & Corporate Finance
T 00 31 (0)20 – 598 72 31
E [email protected]
Visiting address:
Vrije Universiteit Amsterdam
School of Business and Economics, room 6A-55
De Boelelaan 1105
1081 HV Amsterdam
Trusted Payments
| 25-2-2019 | François de Witte | treasuryXL |
In any business transaction, there are risks. The Buyer wants to be sure to receive the goods or services before he makes the payment. On the other hand, the Seller wants to be sure to have his money before he releases the goods or deliver the services. The risks increase when the Buyer and the Seller are not within the same country.
In order to bridge this gap, for large overseas cross border transactions, the banks have developed specific services, such as the documentary credit, the documentary collection and the bank guarantees. Whilst these instruments prove to be reliable, they are quite expensive and paper-based, and hence are not suited for transactions of lower amounts or with small margins.
In my current company, SafeTrade Holdings, which deliver services linked to the domestic and cross-border sale of used vehicles, we were confronted with this problem, in particular for the cross-border sales of used vehicles.
At the start, the parties – who do not know each other – do not trust each other. The Seller wants to make sure to get the cash payment at the end of the sale. The Buyer wishes to avoid a risky cash transfer and ensure that the vehicle matches his expectations and that the payment will only be released once the car has been delivered.
Safe Trade has been looking for an innovative service aimed at ensuring payment security. We have discussed with various providers in the market and have found one smart solution, the trusted payment, developed by Digiteal, a FinTech which is also a Payment Institution recognized by the National Bank of Belgium.
How does it work
The trusted payment aims to establish a relationship of trust between two parties carrying out a financial transaction within the framework of a common project (used vehicle purchase-sale, real estate operation, etc.).
The process is initiated by the Seller or an Intermediary who will invite the Buyer to transfer the cash to a trusted account (segregated account), which can be compared to an electronic safe. The money can only be released once both Buyer and Seller confirm the success of the operation to release the money.
The stages of the transaction are the following:
Figure: Trusted Payment with split:
Benefits of the solution and next steps
The main benefits of the trusted payment solution are that it secures a sale transaction. Other benefits include:
The solution will be extended to other goods and services, where we are currently developing new use cases. We are also examining the possibility to provide alternatives to replace the signing process leading to the release of the funds. One could imagine that at the start of the transaction, the Buyer and the Seller agree on a specific set of documents which would trigger the release of the money through a Smart Contract. This could avoid litigation between the Buyer and the Seller.
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