Binary future: how blockchain is transforming banking

08 December 2016

Rewind a few years ago and ‘bitcoin’ was the buzzword in fintech. In 2016, everybody is talking about blockchain – or at least, they should be – and Barclays is at the forefront of developing uses for the new technology, argues Anthony Macey, Head of Blockchain R&D.

Anthony Macey

Anthony Macey, Head of Blockchain R&D

When I first started talking about blockchain, there was a natural view that it could be illegal and elusive and not something we should be involved in as a bank. But that’s fundamentally misunderstanding the technology. I spend a lot of time talking to teams explaining why this interpretation is wrong and perceptions are certainly changing.

The easiest way to describe a blockchain is as a distributive database that uses public/private key cryptography to secure data and make sure the data isn’t changed. If you have a number of actors in a system, not necessarily known or trusted, then a blockchain is a useful way of interacting with them because everyone has a shared view of the data state at all times. If you have a shared view of the data state, you can also have shared business logic, and work with numerous actors so Barclays, other banks and customers can share the information.

It’s database architecture, so in some ways asking how blockchain applies to banking is like asking “how does Oracle apply to banking” – it’s a way of storing and using data and there are specific reasons why you would choose to use this kind of technology over existing solutions, mostly because of the resilience of the system. If we have things that are system-critical, it can make a lot of sense to pin them to this kind of technology.

In terms of integrating the work we do within Barclays R&D and the work we do with external start-ups in incubators and accelerators, it’s all about matching. If you understand both what the business problem is and the technology, you can go and find a technology provider to bring in what you need.

Fintech start-up Wave helped us with the first blockchain trade finance deal, but the idea was generated before we even knew Wave existed. We sat down with business leaders from Corporate Banking and I explained what blockchain was and how it worked, and they said which of their business problems might be addressed by these types of solutions. One of the priorities was trade finance. The difficulty was that if we tried to build it internally it becomes a cumbersome system and Barclays isn’t the only actor required in the network (you need carriers, merchants, retailers, customers and so on). It made more sense to partner with an external vendor who just needed some support and mentoring to improve its overall proposition.

There are many potential new applications for blockchain within banking. Whenever there’s a situation where you have multiple parties all trying to agree on the status of something, that’s a situation where you can use blockchain. For example, permission chains become useful in capital markets, where there are big issues about reconciling trade data. At the retail level, there are various processes that could be improved, most obviously around mortgages – an agreement between many counterparties only one of which is the bank.

Now, with Corporate Banking, we’re looking at providing banking services to bitcoin and blockchain companies. They’re software companies, but they would previously have been treated like money service companies because of the previous connotations. That’s two completely different types of business but there was a previous lack of understanding that prevented us from providing the right service for them. That’s a sector of the industry that’s relatively untapped because nobody else is doing what we’re doing on the subject – and it’s an example of how understanding blockchain can help us as a bank and better serve our customers.

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