'Blockchain Can Take Digital India to Next Level in Financial Services'
Blockchain is supposed to be the next big thing in fintech. A single, shared and secure data ledger that is easily trackable and transparent makes blockchain attractive to business leaders as it could provide heightened security of data, potentially cut costs and drive efficiencies.
Piyush Singh, MD and Lead for Accenture’s Financial Services Group in APAC, sheds more light on blockchain. Excerpts:
BW: There are doubts about blockchain and how it works. Can you define blockchain in an easy-to-understand manner?
Piyush Singh: Most people know blockchain as technology that underlies digital currencies and was popularised by Bitcoin.
The simplest way to explain the technology is that it organises information chronologically in secure blocks that are ‘chained’ together in an essentially unbreakable sequence using encryption. Once a block is added to the chain and accepted, it cannot be altered without going to very great lengths.
What's unique is how the ‘chain’ is used; instead of running as one central database, copies of the blockchain are spread out among users and kept in parallel on different computers. Users are constantly verifying the accuracy of the information on the growing chain.
A single, shared and secure data ledger that is easily trackable and transparent makes blockchain attractive to business leaders from financial services to healthcare, and from energy to education as it could provide heightened security of data (in an era of cyber security risks), potentially cut costs and drive efficiencies (by reducing the number of times data needs to be re-entered and/or reconciled).
Indeed, blockchain could impact businesses as dramatically as the advent of the Internet did in the early 1990s.
BW: How is blockchain empowering the future of financial services in APAC and in India? What is the uptake in APAC regarding blockchain? How is the progress so far?
Piyush Singh: A number of leading banks in India are trying to harness the potential of blockchain to drive innovation. For example, State Bank of India is working with Primechain Technologies to set up BankChain, a consortium of banks exploring, building and implementing blockchain solutions.
Members of BankChain have instant access to a permissioned multi-node blockchain to source code of all active projects and proof-of concepts with a committee driven model. More than 20 banks have teamed up with SBI in this initiative and are implementing multiple business-use cases.
Additionally, banks are looking to use blockchain-based solutions in cross border trade finance, supply-chain financing and cross-border remittances. Yes Bank recently implemented a multi-nodal blockchain transaction using smart contracts to digitise vendor financing for a consumer electrical equipment firm, and Axis and Kotak Bank are conducting pilots for cross-border remittance.
However, we have just scratched the surface when it comes to harnessing the power of blockchain in India. With a little support from the government and the regulators, we believe that blockchain can take Digital India to the next level in financial services.
Take DigiLocker, for example, in collaboration with Unique Identification Authority of India (UIDAI) and an online storage of 1GB on the cloud, which allows linking of AADHAR card details to store official documents (such as drivers’ licenses, PAN cards, education certificates, vehicle ownership documents etc.) and coupled with the security of biometrics, it could transform digital identity management across India.
The pickup for this technology is unquestionably on the rise across Asia-Pacific. In China, blockchain is among the advanced technologies being promoted under China’s 13th five-year plan to help upgrade domestic industries – which very much puts it on the map for the big players in China’s market.
The Monetary Authority of Singapore has completed a proof-of-concept trial for using distributed ledger technology (DLT – of which the blockchain is a type) to power domestic inter-bank payments. The Reserve Bank of Australia (RBA) is also looking at blockchain led solutions in the payments and market infrastructure leveraging fintech solutions.
And, it’s also a darling of fintech startups in Asia-Pacific. For example, Hong Kong-based BitSpark, a 2015 alumnus of Accenture’s FinTech Innovation Lab Asia-Pacific, offers low-cost remittance service leveraging blockchain technology.
Since its participation in the Lab, it has extended its services from Hong Kong, the Philippines, Indonesia and Vietnam to include Malaysia, Nigeria and Pakistan as well. Last year it also launched a blockchain payment mobile app called Sendy for individuals that requires no knowledge of blockchain technology to gain access to cheaper remittances and country options.
BW: How is blockchain offering the next leap in the disruption to business?
Piyush Singh: Blockchain offers security and efficiency. In an era where the GAFAA companies – Google, Apple, Facebook, Amazon and Alibaba -- have transformed our expectations of customer service, other industries need to keep up. But they also need to be assured data is safe. Blockchain enables that!
BW: Blockchain promises to transform many key financial functions and operations, and unlock unprecedented efficiencies. Elaborate.
Piyush Singh: Financial services companies could reduce or eliminate the reconciliation costs by replacing traditionally fragmented database systems with a distributed ledger system, while improving data quality.
As a result, banks could reap significant savings on their core middle- and back-office processes. For instance: finance-reporting costs could drop by 70 percent due to the optimised data quality, transparency and internal controls provided with a shared, single source of verified data. Compliance costs could shrink by 30 percent to 50 percent at the product level and on a centralised basis because of the improved transparency and auditability of transactions.
Centralise operations that support functions such as KYC and client onboarding could contribute to 50 percent savings by establishing more efficient processes to manage digital identities, and by mutualising or sharing a single source of client data securely across multiple banks.
To give you a headline figure, according to a report by Accenture and McLagan which is part of Aon Hewitt, a business unit of Aon plc, the technology could reduce infrastructure costs for eight of the world’s 10 largest investment banks by an average of 30 per cent, translating to $8 billion to $12 billion in annual cost savings for those banks.
BW: How can these solutions help banks reduce the cost of operations, but also create new products and services?
Piyush Singh: The cost savings comes from the across the board – from the reduction of redundancy of input, maintenance of siloed servers, to the cost of errors when inputs are wrong. The new products and services will require an investment in blockchain, coupled with other technologies such as analytics of big data.
For example, the insurance industry could use blockchain to create new business models based on personalised, real-time assessment of risk rather than using historical data and averaged pricing. With blockchain securing data, companies might feel more comfortable working in real time. It could enable property and casualty insurers to create more sophisticated pay-as-you-go and usage-based insurance models in partnerships with auto manufacturers or makers of smart home devices.
BW: How can blockchain help the world’s largest investment banks cut their infrastructure costs?
Piyush Singh: Today, investment banks maintain their own independent databases of transactions, customer information and other reference data. To complete any transaction, banks need to reconcile and confirm their data with their counterparties and clients which is a complex, costly, and labor-intensive process that is prone to error.
By replacing traditionally fragmented database systems that support transaction processing with a distributed ledger system, banks could reduce or eliminate reconciliation costs, while improving data quality.
BW: Elaborate on trends in blockchain. For example, if blockchain is so secure and that security is vital to thwarting cyberthreats, why did Accenture propose a means for editing blockchain?
Piyush Singh: The uneditable nature of the system – we call it ‘absolute immutability’ – has been vital to decentralised cryptocurrency systems, like Bitcoin. There is no single authority but users can always trust the ledger is true.
But, what if an error is inputted? One of the issues with conventional blockchain technology is that if someone attempts to make a change to a block, they ‘break the math,’ or chain of algorithms, that holds the blocks of information together.
Unless a sufficient number of participants accept the change, the system essentially rejects it, leaving the blockchain intact and creating an evidence-trail of tampering. If enough participants agree to a change, a fork can be added, with one prong ending on (or diverging from) the faulty block and another prong continuing onward from the corrected block.
But, after a block has been corrected all subsequent blocks must be reconstructed. At best, that is costly and disruptive, and at worst, practically impossible.
The invention we proposed is for private and corporate systems. Blockchains are still immutable to users of our system but, when necessary, trusted administrators acting on agreed rules of governance could edit, rewrite or remove blocks of information without breaking the chain.
It does this by using a new variation of what is known as the ‘chameleon’ hash function, which can recreate algorithms that link two separate blocks through the use of secure private keys.
The invention also offers a capability where any edit made to a block leaves an immutable ‘scar”’ to indicate that the block was altered. So it retains 99 percent of the benefits of blockchain technology, but allows for those 1 percent scenarios of human error, mischief and lawbreaking where you need to set the record straight for the system to keep working. It also provides flexibility, which will be required by regulators.
