Henri Wajsblat, Anaplan’s Head of Financial Services Solutions, interviewed Tridant’s General Manager Rana Banerji about the expected benefits of blockchain technology and how he believes the Anaplan platform can complement blockchain architecture.
What is a blockchain, and how does its technology relate to financial services?
A blockchain is a type of distributed ledger-like an Excel® spreadsheet, for example-that is shared across a business network. Similar to a database, it maintains a continuously growing list of data records or transactions. However, a blockchain provides additional benefits: it is shared publicly, decentralized, secure, trusted, and automated.
The financial services industry, specifically, can benefit from the adoption of blockchain in several areas:
- Cross-border payments. Blockchain can improve cross-border payments by speeding up and simplifying the process, while reducing costs significantly and cutting out many of the traditional middlemen. At the same time, it could also make money remittances more affordable. Until now, the costs of remittance were 5-20 percent. Blockchain technology could reduce the costs to 2-3 percent of the total amount and provide guaranteed, real-time transactions across borders.
By conducting inter-bank and customer payments using blockchain, financial institutions are able to save a substantial amount on costs and improve the safety and speed of domestic and cross-border payments.
- Know your customer (KYC) and anti-money laundering (AML) initiatives. In developing compliance platforms and KYC processes on top of blockchain technology, banks can reduce operational costs in these departments, increase the efficiency of compliance processes, and develop a closer relationship with the financial regulator.
For post-trade settlement functions within banks, blockchain can play a vital role by allowing quicker settlement of trades. Blockchain enables a faster process of verification, reconciliation, and clearance as a single version of agreed-upon data is already available on a shared ledger between financial organizations.
Blockchain can also substantially reduce the risk of fraud and data theft as the distributed ledger technology stores, encrypts, and verifies every single bit of data in a transaction. Therefore, should any data breach or fraudulent activity occur, it would be made immediately obvious to all parties who has permission to access the transaction data on the ledger.
The Monetary Authority of Singapore (MAS) is currently underway with Project Ubin (SGD on distributed ledger), a collaborative project with the industry to explore the use of distributed ledger technology (DLT) for clearing and settlement of payments and securities. DLT has shown potential in making financial transactions and processes more transparent, resilient, and at lower cost. The project aims to help MAS and the industry better understand the technology and the potential benefits it may bring through practical experimentation.
MAS is partnering with R3, a DLT company, and a consortium of financial institutions on a proof-of-concept projects to conduct inter-bank payments using blockchain technology. The consortium includes Bank of America Merrill Lynch, Credit Suisse, DBS Bank, HSBC, J.P. Morgan, Mitsubishi UFJ Financial Group, OCBC Bank, Singapore Exchange, UOB Bank, and others
- Real estate transactions. In the real estate industry, blockchain and distributed ledger technologies could be useful in almost all types of real estate activities, including money transfers, property registration, and the finalization of agreements.
For example, one Singapore-based startup launched a real-estate-backed cryptocurrency. Investors issue digital tokens in exchange for Singapore dollars, with each token entitled to the cash flow of the underlying real estate investment that it references.
Some advantages blockchain provides for the real estate industry are:
- Transparency for investors, as every transaction is recorded and visible on the chain;
- Reduced cost of investment by removing the involvement of the asset manager;
- Improved liquidity for real estate investment, because the capital outlay for buying a token is much smaller than for an entire property.
By using smart contracts in which the terms are “payable upon receipt,” a proof-of-delivery notice from a logistics carrier immediately triggers digital invoicing and payments through the banking system, with no analog gap between customer and supplier. This has the potential to radically reduce working capital requirements and dramatically simplify finance operations, with direct impact to the bottom line.
What are some of the benefits that financial services firms can expect from blockchain?
Blockchain can provide five types of benefits to the financial institutions:
- Lower transaction costs. Because there are no third parties or clearinghouses required in the blockchain model, overhead costs, in the form of fees paid to clearinghouses or trusted third parties, can be massively reduced.
- Decentralization. There is no need for a trusted third party or intermediary to validate transactions in a blockchain model. Instead, a consensus mechanism is used to agree on the validity of the transactions.
- Speed. Blockchain can reduce the paperwork time to close trade finance, banking, and real estate transactions from weeks and months to hours or even minutes. Cross-border fund transfers and conversions are quicker and cheaper, and technical operating costs related to the transfer of ownership are reduced.
- Security. Each hash in a block is a digital signature, and once multiple blocks are tied together to create a blockchain, the digital signature is unique and irrefutable. To falsify an existing distributed ledger entry, one would need to hack every computer on which a copy of the ledger is stored, and the number of computers involved can be enormous. The entries cannot be deleted or modified post factum, which significantly reduces opportunities for fraud and embezzlement.
- Transparency and liquidity. Using open blockchain-based ledgers, sellers and buyers gain customizable access to all documents related to a transaction and are able to check their accuracy and authenticity. This increase in transparency and liquidity makes real estate a more liquid investment vehicle and may lead to a stronger capital inflow.
How do you think blockchain and the Anaplan platform might complement each other?
When data moves out of proprietary systems and onto an open blockchain, having the data itself is no longer a competitive advantage. Interpreting, analyzing, and planning the distributed ledger data becomes the advantage, and that is where I believe the Anaplan platform can complement blockchain architecture.
Anaplan has traditionally leveraged data from general ledgers, such as accounting systems, but with the ability to leverage blockchain data across a distributed ledger system, real estate companies and financial service organizations can rapidly understand the value of the information and take advantage of modern architectures. Legacy planning systems will struggle to adapt to and connect with blockchain and other distributed ledger systems.
Fundamentally, Anaplan provides a fast, flexible, and agile approach to planning, analysis, and reporting. Using it, critical insights from distributed ledger data can be disseminated to business stakeholders. In addition, Anaplan enables forward-looking reporting, which helps institutions anticipate the many factors impacting their business models and can support management decisions from finance, risk, and other parts of the organization.
Scenario-based modeling and forecasting, along with collaboration between finance and risk groups, is needed to reconcile financial and regulatory reporting under the new IFRS and solvency frameworks. Across real estate and property value chains, the Anaplan platform can leverage private or public blockchain data so that investment analysts can better plan and make decisions.