As central financial intermediary, the banking industry offers a broad range of potential applications for blockchain technology. The purpose of this study is the exploration of the possible uses of blockchain in the field of commercial banking, the derivation of potential operational and strategic implications of such applications, and the uncovering of hurdles that currently stand in the way of a wider-scale implementation of the technology.
The exploratory research design is based on a literature review as well as on interviews conducted with dedicated blockchain professionals. The research methodology resulted in the identification of three particularly relevant use cases of blockchain technology in commercial banking: cross-border payments, trade finance, and know-your-customer applications. Utilizing blockchain within these areas can allow commercial banks to reduce process complexity and operating cost as well to unlock additional strategic opportunities. But as of today, technological issues, the lack of a common standard, regulatory uncertainty, and cultural hurdles of organisations still prevent the implementation of blockchain in commercial banks on a wider scale.
Table of Contents
1. Introduction
1.1 Problem Discussion
1.2 Objective of the Study
2. Technological Background
2.1 A Short History of Blockchain Technology
2.2 What Blockchain Is
2.3 How Blockchain Works
2.3.1 The Blockchain Lifecycle
2.3.2 Consensus Mechanisms
2.3.2.1 The Proof-of-Work Mechanism
2.3.2.2 The Proof-of-Stake Mechanism
2.4 Types of Blockchains
2.4.1 Public Blockchains
2.4.2 Private Blockchains
2.4.3 Consortium Blockchains
2.5 Benefits of a Blockchain
2.6 Possible Areas of Application for Blockchains
2.6.1 Cryptocurrencies
2.6.2 Value-Registry
2.6.3 ValueWeb and Smart Contracts
3. A Short Overview of the Banking Industry
3.1 Commercial Banks
3.2 Investment Banks
3.3 Central Banks
4. Research Methodology
4.1 Literature Review
4.2 Expert Interviews
4.3 Methodology Discussion
5. The Impact of Blockchain on the Commercial Banking Industry
5.1 Forces of Change in the Banking Industry
5.2 Pressing Use Cases of Blockchain in Commercial Banking
5.2.1 Use Case: Cross-Border Payments
5.2.1.1 Current Situation
5.2.1.2 Blockchain-Based Solution: Ripple
5.2.1.2.1 How Ripple Works
5.2.1.2.2 Operational and Strategic Implications
5.2.1.3 Outlook
5.2.2 Use Case: Trade Finance
5.2.2.1 Current Situation
5.2.2.2 Blockchain-Based Solution: Skuchain
5.2.2.2.1 How Skuchain Works
5.2.2.2.2 Operational and Strategic Implications
5.2.2.3 Outlook
5.2.3 Use Case: Know-Your-Customer
5.2.3.1 Current Situation
5.2.3.2 Blockchain-Based Solution: SecureKey
5.2.3.2.1 How SecureKey Works
5.2.3.2.2 Operational and Strategic Implications
5.2.3.3 Outlook
6. Hurdles to the Implementation of Blockchain
6.1 Technological Hurdles
6.2 Mass Fragmentation
6.3 Regulatory Uncertainty
6.4 Cultural Hurdles
7. Conclusion and Outlook
Objectives and Topics
This master thesis explores the integration of blockchain technology within the commercial banking sector. The primary objective is to identify key use cases, analyze their operational and strategic implications for banks, and evaluate the current barriers hindering wider technological adoption.
- Analysis of blockchain applications in commercial banking (cross-border payments, trade finance, and KYC).
- Evaluation of operational efficiency gains and cost-reduction potentials for banking processes.
- Assessment of strategic opportunities, including new business models and improved customer experiences.
- Identification of technological, regulatory, and cultural hurdles preventing industry-wide implementation.
- Validation of research findings through expert interviews with blockchain professionals.
Extract from the Book
5.2.1.2.1 How Ripple Works
In essence, Ripple is a “[…] settlement infrastructure technology for interbank transactions” (Meijer, 2017a) that allows for the direct transfer of funds between two parties, in any currency the transacting parties wish for. As such, as Ripple’s former CEO Chris Larsen puts it, “Ripple simplifies the [exchange] process by creating point-to-point and transparent transfers […]” (Meijer, 2017a).
Ripple currently offers two technical solutions for cross-border interbank payments, as is depicted in figure 10: Either the sender’s bank leverages an existing nostro/vostro relationship with other banks to transfer the funds (relevant for high-volume corridors, where banks possess the necessary leverage to source FX at competitive rates), or the bank chooses to rely on market makers within the Ripple network to provide FX liquidity at competitive exchange rates (Ripple, 2017b).
No matter which of the two paths for exchange a bank chooses to utilise for the cross-border fund transfer, Ripple ensures a real-time fund movement by coordination across all involved ledgers. This is achieved via the utilisation of Ripple’s Interledger Protocol (ILP), as is depicted in figure 11.
Summary of Chapters
1. Introduction: Discusses the emergence of blockchain as a revolutionary technology and highlights the traditional, often stagnant, banking models that are currently facing potential disruption.
2. Technological Background: Provides a comprehensive overview of blockchain, covering its history, core mechanisms, types (public/private/consortium), and its unique benefits regarding security, transparency, and automation.
3. A Short Overview of the Banking Industry: Defines the functional roles of commercial banks, investment banks, and central banks within the global financial economy.
4. Research Methodology: Explains the dual-method approach, consisting of a systematic literature review of 39 relevant publications and qualitative insights from expert interviews.
5. The Impact of Blockchain on the Commercial Banking Industry: Deep-dives into the three identified use cases (cross-border payments, trade finance, and KYC), analyzing current pain points and potential blockchain-based solutions.
6. Hurdles to the Implementation of Blockchain: Examines the primary challenges, including technological limitations, market fragmentation, regulatory uncertainty, and organizational culture.
7. Conclusion and Outlook: Summarizes the study’s findings and provides a forward-looking perspective on the evolution of banking in a post-blockchain era.
Keywords
Blockchain, Distributed Ledger Technology, Commercial Banking, Cross-border Payments, Trade Finance, Know-Your-Customer, KYC, Ripple, Skuchain, SecureKey, Smart Contracts, Digital Identity, Financial Disruption, Operational Efficiency, Regulatory Uncertainty.
Frequently Asked Questions
What is the core focus of this research?
The thesis focuses on the integration and application of blockchain technology specifically within the commercial banking sector, examining how distributed ledger technology can improve existing financial processes.
What are the primary areas of application identified in the study?
The research identifies three core use cases for commercial banks: cross-border payments, trade finance operations, and Know-Your-Customer (KYC) identity management.
What is the main objective of the thesis?
The objective is to explore the potential for blockchain to address inefficiencies in banking, derive the operational and strategic implications for incumbents, and map out the current hurdles to mass-scale adoption.
Which research methods were employed?
The study uses a two-pronged design: an in-depth literature review of current grey literature and academic reports, combined with semi-structured interviews with four blockchain experts from different fields.
What is covered in the main section of the paper?
The main part of the thesis analyzes the current state of banking infrastructure, identifies key "pressing" use cases where blockchain adds value, and details the specific technological and cultural obstacles to implementation.
Which keywords best characterize the work?
The core themes are characterized by keywords such as blockchain, commercial banking, distributed ledger technology, operational efficiency, trade finance, and digital identity.
How does the study view the role of banks in the future of blockchain?
The study suggests that while banks are threatened by potential disruption, they are also uniquely positioned to act as trusted intermediaries and custodians of digital identity if they successfully integrate blockchain into their operations.
What is the "chicken-egg-problem" mentioned regarding blockchain adoption?
The author describes a lack of a critical mass of participants and standards, which hinders the interoperability and network effects required for blockchain solutions to replace legacy banking infrastructures.
What is the outlook for regulatory involvement in blockchain?
The research indicates that regulators are observing the space with openness but have not yet formed a standardized set of global rules; the industry expects reactive rather than proactive regulation as pilot projects evolve.
- Arbeit zitieren
- Philipp Herrlich (Autor:in), 2017, Blockchain in Banking, München, GRIN Verlag, https://www.grin.com/document/1180545
