Financial services organisations have been slow to implement blockchain technology, but Credit Suisse has kicked off a number of projects to cut costs and address structural challenges and the all-important operational efficiencies.
Emmanuel Aidoo is a director and the head of emerging technology in the global markets division at Credit Suisse. He is responsible for coming up with and executing the bank’s blockchain and cryptocurrency strategy. He spoke on a panel at the TABB Group’s recent MarketTech conference in New York about blockchain initiatives currently in production and how fast he sees adoption picking up across the financial services industry.
Having worked close to two decades at Credit Suisse, Aidoo has held various senior roles, including global head of debt capital markets technology and global head of leveraged finance technology. He has spent the past two-plus years spearheading the bank’s blockchain practice.
How blockchain enables cost-cutting
Aidoo sees various applications of blockchain for Credit Suisse’s transactional initiatives, including trading.
“If you take the word ‘Bitcoin’ and substitute it with the word ‘equities,’ that’s pretty powerful,” Aidoo said. “We’ll be able to remove the word ‘clearing’ from our taxonomy, which is currently a cost.
“I’ve been able [to use blockchain] to automate operations processes, which factors into ROE, because it can reduce costs, also taking into consideration the impact on market risk, credit risk and operational risk [management].”
Specifically, the transparent nature of the distributed ledger technology means that banks don’t have to reconcile blockchain-enabled transactions.
“Reconciliations are the processes by which we mitigate operational risk,” Aidoo said. “If you’re in a capital-markets business, and you are shedding front-office staff, reducing headcount and wondering how you’re going to stay afloat, look no further than blockchain to reduce costs. A dollar saved in costs is worth more than a dollar generated in revenue – that’s why I care about it and why Credit Suisse cares about it and why our peers across the Street are adopting it,” he said.
Blockchain’s revenue-generation capabilities are still untapped
Banks are still experimenting with how to use blockchain to increase revenue and open up new markets. Those applications are still a way down the road, Aidoo said.
Last month, Credit Suisse announced a successful proof-of-concept “project to demonstrate how blockchain technology can be used to improve the syndicated loan market” using smart contacts, with “participation from a number of agent banks, service providers and fund managers.”
Aidoo said that this project demonstrates the potential for blockchain technology to fundamentally reshape the syndicated loan market and the capital markets more broadly. It has set Credit Suisse on a path to increase efficiency and reduce costs, which he said will benefit banks and clients alike. The aim is to connect a network of banks through blockchain to achieve faster and more certain settlements in the loan market.
Aidoo predicts that the financial services industry will debut additional use cases next year and even more in 2018, with priority placed on asset classes where there is a lot of complexity in the workflow.
“It will vary from asset class to asset class – in the asset class context, we’ll actually see blockchain adoption sooner where there are no regulatory hurdles to get over,” Aidoo said. “There have been proof-of-concept projects on loans, equity swaps and credit default swaps, with other big-name banks involved too.
“We’ve seen a number of first-class institutions look at blockchain, but what they lacked was proof of value – proof that the technology works is all well and good, but proof of its value considering how much it will cost is another,” he said. “You don’t want to rip up existing infrastructure and replace it with blockchain just because it’s the new hot technology.”
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