Adoption of the blockchain within the financial services industry is on an intense upward trajectory, according to the findings of management consulting company Greenwich Associates. They have found that the industry is spending about $1.7 billion per year on the technology.
Banking Industry Spends $1.7 Billion Each Year on Blockchain as Products Are Rolled Out
While the banking industry remains in strong opposition to the cryptocurrency market for a number of disruptive reasons, banks and other firms within the financial ecosystem have been exploring blockchain technology in the last few years. The R3 consortium launching in 2014 is the most popular bank organized project. The industry is now moving past the proof-of-concept phase and has started to commercialize blockchain products, reports Bloomberg.
Greenwich Associates, a market intelligence and advisory services provider based in Connecticut, U.S., has published a study that showed blockchain budgets increased 67% last year. Not only that, but one in 10 of the banks and other companies are now reporting distributed ledger technology (DLT) budgets in excess of $10,000,000.
The firm conducted over 200 interviews with market participants for one of the most comprehensive studies on the topic to date, including those of blockchain budgets, team sizes, use case exploration, key challenges, and other issues.
The report concluded that banks and other firms have doubled blockchain initiatives in 2017, with top-tier banks now having an average of 18 full-time employees working on it. Fourteen percent of participants in the study said they have successfully deployed a production blockchain solution, with payments and trade finance being their main focus.
Cost reduction is the biggest driver of blockchain investment and development, surpassing motives such as revenue opportunities, settlement issues, and diminished risk and cost of capital, according to the study authored by Richard Johnson, vice president of Greenwich Associates Market Structure and Technology.
“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.”
Although the report states that payments are a top priority for banks in their development of distributed ledger technology, banking institutions are on the losing side of the race and bleeding customers as well as transaction volumes. Legacy systems are now competing with scalable, real-time, and on-demand infrastructures able to reduce the marginal cost of a transaction potentially to zero.
The international payments business is being unwillingly handed over to non-banks who have taken 40% of market share for consumer-to-consumer (C2C), cross-border payments from banks. Banks have also lost 30% and 5% of the consumer-to-business (C2B) and business-to-business (B2B) payments markets, respectively.