Blockchain in banks

Alexey Katrich – associate professor at Finances, Money Circulation and Loans chair of the Russian Presidential Academy of National Economy and Public Administration, head of sales at Technoserv, co-founder of ModulTrade fintech-blockchain company

Blockchain may be employed in various banking sectors. In fact, a number of banks are already using blockchain both for their own needs and in partnerships with other companies. Various areas where blockchain may be useful for banks, are detailed below.

The first step of implementing this technology is launching it in a particular bank or financial group. Once banks establish such an ecosystem, they can easily extend it to the external participants of a financial institution. For a smooth transition, they can choose a two-stage approach to implementing blockchain, as described below.

Stage 1. A blockchain solution should be first applied to internal transactions and other ecosystem areas, where information control and data access are exercised. That can be, for instance, access to loan documentation, information exchange between banks’ internal business groups and regulators, etc. Large banks may go further and use blockchain for international transactions in all areas and all over the world, whereas smaller banks may use blockchain to start data and documents exchange with their customers and vendors.

Stage 2. Once banks have implemented and tested a blockchain-based internal ecosystem, they may start joining other blockchain ecosystems and partners and interact with other financial institutions. They can also begin blockchain data sharing with other institutions.

In the process of implementation, its stages should advance as waves, based on certain application goals. It is advisable to use Time to Implementation and Business Value for filtration and short time options usage. It is also advisable to follow an interactive approach to implementation.

Three key cases when blockchain may be used for staged approach in banks, are described below.

1. KYC and AML process. Banks can employ blockchain-based technologies to maintain their KYC data on their customers. Such solutions can be applied to various spheres of the banking business as well as to meeting AML requirements.

Once KYC is accomplished, data may be stored in a blockchain system available to various divisions of a bank when they need to again put together KYC for a customer. This solution can help to reduce the needed to accomplish KYC by various bank’s divisions.

After a blockchain KYC database is installed by a bank for its customers, it may allow the customers data system to be used by other financial institutions and banks subject to employing a privacy key. A housing and utilities company, for example, will have to finalize the KYC process for a client, before its services may be rendered. Such a company can fill in the customer’s KYC and simply and swiftly get access to the bank’s blockchain system via a privacy key. The bank can in turn charge the utilities company for providing a reliable source of data. It is a win-win situation for everyone involved, as

• the bank can monetize the data it has;
• the utilities company can swiftly accomplish the KYC process via a reliable data source;
• the customer can save time spent on KYC at every banking or utilities entity the customer deals with.