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The level of hype surrounding the potential applications for blockchain technology in the financial services industry – and in payments in particular – continues to grow at a rapid pace. The news of Bank of America's patent for a blockchain-based wire transfer service is just one of a huge number of developments across the industry. Blockchain will be a big part of the industry conversation in 2016.

Bank of America's patent indicative of growing importance of blockchain in financial services

Unlike the cycles of hype that the tech industry has grown accustomed to over the years (SMAC, anyone?), the level of interest around blockchain is notable for the degree to which the activity is being led by the industry, with comparatively less happening among the vendor community.

The news that the United States Patent and Trademark Office approved an application filed by Bank of America for what could become a blockchain-based wire transfer service is particularly notable. The patent, which was filed in March 2014, outlines a model in which payments in established currencies can be made by using a blockchain-based cryptocurrency as the payment rails. The concept is to

  • convert the funds for the payment into a cryptocurrency (for example, Bitcoin) via one of the many exchanges

  • transfer this value within the cryptocurrency network

  • convert this at the receiving end (almost instantaneously) into the desired currency value.

In theory, this approach could allow for the use of whichever cryptocurrency solution offered the most preferential exchange rates into and out of the currencies in question. It has particular applications in the cross-border payment space, in which high costs, low speed, and the reliance on third parties create friction in the payment process.

This is only a patent of course, but nevertheless highlights the degree to which blockchain technology is growing in importance within the financial services industry. The potential for distributed ledgers to revolutionize cross-border payments in particular is gaining attention. Ripple Labs – one of several innovators looking to drive change in the industry – is already working with Fidor Bank and CBW in this regard.

In 2015 alone, the list of banks announcing blockchain proof-of-concept projects has soared. Santander, Deutsche Bank, Citigroup, Westpac, and CBA are among many tier-1 retail banks that are active here, with the Federal Reserve and Nasdaq also both exploring the opportunities arising from the technology.

While we're still a little time away from major commercial launches, one thing is clear: 2016 is going to be a big year for the blockchain in financial services.


Further reading

Framework: Bitcoin and the Blockchain Basics, IT0059-000003 (February 2015)

On the Radar: Ripple Labs, IT0059-000011 (May 2015)


Kieran Hines, Practice Leader, Financial Services Technology

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