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The case for banks to love the blockchain - Six use cases

Authored by: Synechron Technology Group

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55 percent of bankers think blockchain will have a huge impact on the financial services industry over the next 10 years, according to a survey by Synechron and TABB Group.

Money and technology are colliding in new and exciting ways. As technology-enabled digital money transactions occur, there is an ever-escalating focus on how to make these transactions safer and more transparent. Enter the 'blockchain' – the contentious new digital ledger technology that was first tied to the bitcoin bonanza but now is emerging as a truly transformative technology in finance.

The industry is beginning to understand the true impact blockchain will have. According to a recent joint survey of 92 companies by Synechron and TABB Group, 55 percent said they think blockchain will be a hugely important technology in financial services. Twelve percent already have deployments in blockchain.

“Blockchain technology continues to redefine not only how the exchange sector operates, but the global financial economy as a whole,” said Bob Greifeld, CEO of Nasdaq, after the company announced a bitcoin partnership last year.

Leading bankers and technology experts joined Synechron in April at Manhattan’s Metropolitan Club for a roundtable discussion to offer insights into the power of blockchain and examine the industry innovations to come.

The Essence of Blockchain
Blockchain creates transparency around transactions and provides safety and security for not only people’s money but also their data. By utilizing a digital, decentralized ledger, blockchain optimizes accuracy, accountability, speed and transparency.

The enormous potential of blockchain extends well beyond digital currencies. Digital ledgers and smart contracts are quickly being revolutionized by the implementation of blockchain. Estonia has begun using it to conduct shareholder voting. The British government is considering incorporating blockchain into their student loan payments.

Synechron is working closely with financial institutions to identify how blockchain protocols like Ripple, Ethereum and Multichain can be used to develop innovative solutions for issues such as faster payments or securities settlements. As a leading digital innovator, Synechron’s consultants leverage their deep, practical financial services expertise to find effective and real-world use cases for blockchain to address business challenges.

Six Use Cases for Blockchain
Through our work with clients, Synechron sees six fundamental areas where blockchain can make a significant impact:

1. Real-Time Payments
In order to pay out of one central counterparty, banks often need to maintain reserves with multiple counterparties at once. Blockchain enables banks to settle transactions point-to-point as a straight through process. This will create easier, cheaper, faster and better transactions for both the bank and the customer. As the Fed ramps up its Faster Payments initiative, Synechron is working with banks to identify how blockchain can help banks more easily implement real-time payments schemes.

2. FX and Remittance
Currently, transactions must be carried out through correspondent banks and a central counterparty. Banks must hold accounts with these correspondent banks, and lifting fees that can reach 25 cents on the dollar are often attached. A lack of banking infrastructure in these countries further complicates these issues. Utilizing blockchain will allow banks to settle point-to-point with payment service providers in different jurisdictions serving as a gateway to a ledger. This will significantly reduce lifting fees and allow for better exchange rates through a broader set of market makers and better deal algorithms. All of this will happen with a process reduced to a matter of seconds.

3. Documentary Trade
Documentary trade today exists in a slow, manual process, often in person to verify the legitimacy of a client. It exists through paper-based administration. Blockchain creates an automated process without sacrificing transparency, which results in lower costs and higher efficiency. It digitizes an end-to-end process all while creating an improved paper trail.

4. Asset Servicing
A key benefit of blockchain is that transactions are permanently replicated on a shared ledger. Used in asset servicing, firms will simplify a process that is currently supported across custodians, originators and investors. This will create a rapid settlement of cash flows while dramatically reducing accounting and auditing overhead.

5. Securities Settlement
A key benefit of blockchain is that transactions are permanently replicated on a shared ledger. Used in asset servicing, firms will simplify a process that is currently supported across custodians, originators and investors. This will create a rapid settlement of cash flows while dramatically reducing accounting and auditing overhead.

6. Commercial Lending
Commercial lending is hindered by each component of a loan existing in a company’s private ledger. Understanding transactions without overall transparency is challenging. Using blockchain technology, loans and all of their subcomponents can be held on one ledger where the full ownership and liabilities are transparent.

How the Business will Evolve
How these key areas will be effected depend heavily on how blockchain can be incorporated. The TABB Group survey revealed that the biggest hurdles these companies see for blockchain are regulatory issues.

Large players with lower complexity will allow for easier integration. Areas like remittances, alternative payments, mortgages and pre-paid accounts will become the first wave of transition to blockchain. Intra-company cross-border payments, commercial lending, and documentary trade will come next. With each wave, new integrations and understanding will create more possibilities for users until, ultimately, exchanges, asset trading, and clearing networks all operate on blockchain.

Blockchain is a cryptographically secure, transparent database that stores data forever. “The question is no longer ‘what if’ – it is ‘when’ and ‘how,’” said Stan Stalmaker, Founding Director of Hub Culture, a presenter at the roundtable. Firms are racing these capabilities to market and creating a truly distributed environment.

“People may never love blockchain but they will love the services built on top of it,” Murray said.

The real benefits exist in what blockchain makes capable. The main hurdle is in transitioning. Using it or understanding it will begin as a frustrating process but banks will inevitably embrace these increased capabilities and security features.

“While there is the potential for many winners, there will also be many losers,” warned Murray. Integrations have started and it is only a matter of time that more and more of these services move to blockchain. These innovations will continue and business processes will be revolutionized. Smart contracts will make agreements simple and instantaneous. Consensus algorithms will allow for easy verification, and digital currencies will allow payments to happen almost immediately.

New technologies move power back to the people. Blockchain is the future. It streamlines business operations. It creates stronger currencies. It offers the unbanked and underbanked services they previously could not access. The decentralized world is here: it is just a matter of time to determine who the first adopters will be.

Synechron on Blockchain
Synechron helps institutions identify how best to adopt blockchain through a number of methods. Our multi-faceted developer and consulting teams can help develop solutions from FX cross-border currency transfers to bitcoin-enabled eWallets.

Synechron helps clients leverage blockchain technology:

  • Facilitate international collaboration and introduce you to global blockchain consortiums
  • Set up and manage multiple Sandbox environments
  • Provide hosting and cloud-based blockchain-as-a-service
  • Develop FX cross-border solutions using Ripple, or integrated with Ripple Connect
  • Develop Ethereum and Multichain smart contract ecosystems and prototypes
  • Design and develop front-end applications for your blockchain solutions
  • Setup, maintain and integrate the Interledger between different blockchain networks
  • Integrated blockchain ‘Oracles’ with third-parties and back-end systems and processes
  • Validate your blockchain use cases

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