Reducing Investment Banks’ Infrastructure Costs by 30 Percent

Reducing Investment Banks’ Infrastructure Costs by 30 Percent

Blockchain technology, a type of database system that enables multiple parties to share access to the same data with a high level of confidence and security, could reduce infrastructure costs for eight of the world’s 10 largest investment banks by an average of 30 percent according to a new report by Accenture and McLagan which is part of Aon Hewitt, a business unit of Aon plc. This translates to roughly $8 billion to $12 billion in annual cost savings for those banks.

The findings of the report, “Banking on Blockchain: A Value Analysis for Investment Banks,” are based on an analysis of granular cost data from the eight banks. Accenture’s insights on blockchain technology combined with McLagan’s data were applied to Accenture’s High Performance Investment Bank model to identify exactly where the value could be achieved.

“Capital markets institutions have faced a perfect storm of regulatory-compliance costs and revenue pressures in recent years, prompting them to invest in emerging technologies as a lever to improve profitability,” said Richard Lumb, Accenture’s group chief executive – Financial Services. “Through this first-of-its-kind analysis of real-world cost data we draw a clearer line under blockchain’s value to investment banks. Our goal is to help banks move rapidly from proof-of-concept to production system with blockchain technology, generating real cost savings and improving bottom-line results.”

David Treat, managing director for Accenture’s financial services industry blockchain practice, said, “Given the tremendous cost of data reconciliation – which is part of every aspect of the capital markets industry – it’s no surprise that we’ve seen a significant amount of investment in blockchain technology. But, as with any emerging technology, understanding what these investments might yield is a challenge. As we move into production implementations, bank executives will need a clear roadmap for how and where to rethink their strategies and redesign their operating models, which is why we undertook this unique study.”

Today, investment banks maintain their own independent databases of transactions, customer information and other reference data. To complete any transaction, banks need to reconcile and confirm their data with their counterparties and clients which is a complex, costly, and labor-intensive process that is prone to error. Blockchain technologies leverage advances in software, communications and encryption that will enable investment banks to move from maintaining a separate, fragmented database structure to a shared, distributed database that spans organizations. Blockchain technology supports a shared digital ledger of transactions recorded and verified across a network of participants. With the technology, transactions reside in a tamper-evident data structure that provides the necessary levels of data security and access for each user.

By replacing traditionally fragmented database systems that support transaction processing with a distributed ledger system, banks can reduce or eliminate reconciliation costs, while improving data quality. According to the report, this would bring significant savings for many of banks’ core middle- and back-office processes.