Reading: Wall Street and Silicon Valley: A Match Made in the Blockchain


Wall Street and Silicon Valley: A Match Made in the Blockchain

Ryan Strauss | Feb 22, 2016 | 06:00

Wall Street Bitcoin

Wall Street and Silicon Valley: A Match Made in the Blockchain

Ryan Strauss | Feb 22, 2016 | 06:00

A new report from Deutsche Bank points to financial technology (FinTech) organizations as being crucial towards advancing initiatives to integrate blockchain technology into Wall Street. Aptly titled ‘FinTech 2.0: Creating new opportunities through strategic alliance’, the report details the untapped potential which collaborative efforts between the largely geographically separated partners could bring, particularly to business-to-business (B2B) payments.

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Blockchain Technology Needs Collaboration Between Silicon Valley and Wall Street

Wall Street

Wall Street

By bridging New York’s financial and regulatory horsepower with FinTech groups, many of whom are startups, Deutsche Bank is echoing an increasingly loud sentiment which is arguably necessary for large banking institutions to benefit from the blockchain’s potential. As the report itself states:

“For banks, the fintech culture and role as disruptor can be used as an advantage, with fintechs’ position outside of bank walls providing the necessary gateway to innovation. Partnership projects can exploit a “sandbox” approach to experimentation – with the freedom to test new ideas away from banks’ infrastructural and cultural constraints – and can sidestep internal obstacles to innovation, such as over-familiarity with antiquated payment methods, or the parameters imposed by investment or regulatory pressures.”

Transitions in digital infrastructure are paving a new path for banks as they look out on the 21st century. Given the unique and powerful ability for Bitcoin’s underlying technology to lower operating costs and latency times around financial settlements, there is a strong business case to advance these initiatives forward.

Many consumer-focused applications have launched, yet advancement on the B2B and infrastructural side is still slower than had been wished. The hope, however, is to advance blockchain development actively through leveraging the unique perspective and technical talent present at FinTech organizations with the scale, muscle, and network of banks. Stating the importance of creating a symbiotic relationship, especially from the angle of FinTech here, the whitepaper states:

“Two of the greatest difficulties fintechs face – particularly in the B2B market – are access to a sufficient client base (of corporates and their treasurers) and the ability to successfully scale-up a functioning solution for mass usage. While nimble and innovative, these corporates often lack the necessary global reach, processing infrastructure, financing capabilities and client-knowledge and experience to translate an in-demand market solution into a viable vehicle for long-term growth.”

In the past 5-10 years, there has been a surge of innovation around payments technology. Large banks are traditionally tied to data security and data privacy laws that force them to proceed with caution when innovating. FinTech startups, on the other hand, can experiment in a more unbounded manner. Recent applications such as Venmo demonstrate FinTech’s power to launch and captivate. Deutsche Bank is sensing the unnecessary divide between Banks and FinTech, and is suggesting that by partnering together new products can be launched more quickly and profit margins will increase for all parties involved.

B2B back-end blockchain solutions, it is hoped, will propel Banks towards an even larger scale and enable them to offer a more diverse and creative product line. For example, there are lots of potential applications of blockchain technology that Banks could pursue, such as partnerships and integrations with suppliers, inventory tracking, payroll assessment, and supply chain payments tracking.

Currently, Banks are hurt by backend, global financial architecture that remains outdated, disjointed, and inefficient and requires costly overhead, all while restricting B2B payment options. Systems such as SWIFT and GPS work and are reliable, yet in a world with quickly evolving communication channels they fall short. Stating the importance for Banks to fully realize B2B pathways, the report states:

“The B2B sector holds even greater potential than the retail advances so far, with online sales estimates for B2B revenues in 2020 double those of B2C. Innovation in this sector will be driven largely by CFOs and treasurers, who, accustomed to the prevalence of technology in their personal lives, now expect the same capabilities and level of convenience for their corporate cash management operations.”

Without the human capital or organizational freedom to explore, Banks are intelligently looking towards FinTech. As it specifically relates to B2B payments, in the developing world there is a huge opportunity for digital businesses and local banks to be included in the global financial ecosystem with much less hassle. Over the long run, look for the success of these partnerships to be fostered through a willingness to work together and overcome cultural differences.

What do you think of Deutsche Bank’s latest report? Can Silicon Valley and Wall Street work together in the long run? Share your thoughts below!

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