Blockchain was developed almost eight years ago, allowing transactions utilizing the virtual currency to be processed and decided on a public network without the need for a third party. Financial Institution are searching to apply it to private networks they run, to save costs by diminishing settlement times and automating systems that are still paper-based, like in economic affairs. About 80 percent of top global banks will have launched blockchain projects by next year, the World Economic Forum (WEF) describing the technology as the future “beating heart” of the financial sector. A survey of 200 top global banks by tech firm IBM last month found that 15 percent will have rolled out commercial blockchain products by the end of 2017. But there is likely to be a transatlantic inequality in bringing out such products, given the costs involved in developing new technology. While U.S. investment banks moved quickly to restructure and recapitalize after the financial crisis, European players are still working with cost-cutting and shoring up their balance sheets.
Dozens of patent applications have been filed in total by Goldman Sachs (GS.N), JPMorgan (JPM.N), Wells Fargo and Bank of America (BAC.N) for blockchain-based products, but there is a record of only one being filed by a European bank – Switzerland’s UBS (UBSG.S). The European banks are cost-focused, whereas U.S. banks like Goldman Sachs and JPMorgan are likely trying to generate revenue, because they’re in different market conditions. No leading bank has publicly said how much it has invested in blockchain. The six global banks approached by Reuters for this story – in the United States and Europe – declined to say how much they had spent. The WEF estimates a total of about $1.5 billion has been invested in blockchain by all industries, including financial institutions and tech firms. The UBS “fintech lab” on the 42nd floor of One Canada Square tower in London’s Canary Wharf financial district does not look much like a bank office. Ideas are scrawled onto walls in pen and Post-It notes adorn a see-through dividing panel. UBS is regarded in the industry as one of the most innovative European banks. It radically restructured its investment banking arm in 2012 – earlier than most of its European competitors – to focus more on wealth management, but it faces the same cost-cutting pressures.
Banks are investing in blockchain in different ways: some invest directly in start-ups or have “incubator” programs where they work with start-up staff, others – like UBS – have “labs” in which they experiment with the technology. Some take all of these approaches. They are also working together on the technology in consortia in order to come up with common standards and systems, with the most notable of these being New York-based R3, which includes most of the world’s biggest banks. Adam Ludwin, CEO of Chain, a San-Francisco-based blockchain start-up that is working with firms like Citi and Nasdaq, said “it would be foolish for banks to spend too much at this point, as the technology was still in an experimentation phase”.
In Reuters interviews about tech innovation with banks, blockchain consortia and consultancies, the name of one U.S. investment bank came up more often than any other: Goldman Sachs, which posted a 58 percent jump in third-quarter profits on Tuesday. The bank, which has a history of establishing new platforms privately that it then sells to the marketplace, as well as investing in start-ups, recently filed a patent application for a platform for trading foreign exchange via blockchain. Earlier this month when Dutch bank ING announced plans to cut 7,000 jobs, it also said it would invest 800 million euros in its technology platform. As Deutsche Bank’s portion cost was sliding towards a 30-year low last month on concerns over a fine from the U.S. Department of Justice, it announced that its new “digital factory” would be staffed by 800 professionals by 2018.