Blockchain Technology Could Reduce Investment Banks’ Infrastructure Costs by 30 Percent, According to Accenture Report
January 17 2017 - 7:29AM
Business Wire
Joint analysis by Accenture and
operations-benchmarking leader McLagan applies real-world banking
data and operating models to assess the prospective value of
distributed ledgers
Blockchain technology could reduce infrastructure costs for
eight of the world’s 10 largest investment banks by an average of
30 percent, translating to $8 billion to $12 billion in annual
cost savings for those banks, according to a new report by
Accenture (NYSE:ACN) and McLagan which is part of Aon Hewitt, a
business unit of Aon plc (NYSE:AON).
Blockchain is a type of database system that enables multiple
parties to share access to the same data with a high level of
confidence and security.
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, as aggregated by McLagan,
a top benchmarking firm. 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.
For example:
- Finance-reporting costs could
shrink by 70 percent as a result of the optimized data quality,
transparency and internal controls provided with a shared, single
source of verified data;
- Compliance costs could drop by
30 percent to 50 percent at the product level and on a centralized
basis due to the improved transparency and auditability of
transactions;
- Centralized operations
supporting functions such as “Know Your Customer” and
client-onboarding could bring 50 percent savings by establishing
more-efficient processes to manage digital identities and by
“mutualizing” – or sharing – a single source of client data
securely across multiple banks; and
- Business operations such as
trade support, middle office, clearance, settlement and
investigations could also lower their operating costs by 50 percent
by reducing or eliminating the need for reconciliation,
confirmation and trade-break analysis.
“This joint analysis with Accenture suggests that blockchain
technology could significantly change the cost structure of
investment banks over the next decade,” said Chris Blain, partner
at McLagan. “The technology represents a potentially important
breakthrough at a time when leading investment banks are looking at
myriad ways to rebuild their returns on equity.”
About Accenture
Accenture is a leading global professional services company,
providing a broad range of services and solutions in strategy,
consulting, digital, technology and operations. Combining unmatched
experience and specialized skills across more than 40 industries
and all business functions – underpinned by the world’s largest
delivery network – Accenture works at the intersection of business
and technology to help clients improve their performance and create
sustainable value for their stakeholders. With more than 394,000
people serving clients in more than 120 countries, Accenture drives
innovation to improve the way the world works and lives. Visit us
at www.accenture.com.
About McLagan
McLagan provides compensation consulting, operational
benchmarking, and best practice research across the financial
services industry. McLagan combines 50 years of thought leadership
in strategy, performance, human capital management, and
compensation data with fact-based advice to create a tailored
solution specific to your organization. McLagan is part of Aon
Hewitt, a business unit of Aon plc (NYSE:AON). For more information
on McLagan, please visit mclagan.aon.com.
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AccentureSean K. Conway, + 1
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43172petra.shuttlewood@accenture.comorAccentureLara Wozniak, + 85 2
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