In the past several decades, years or so, it’s not the business processes and functions in a bank that have evolved enormously. What has changed in a significant way is the technology which drives the business functions - customer facing, risk management and back office. The waves in automation and digitalization have gone a long way in increasing profitability and driving shareholder value.

With the financial crisis of 2008 behind us, the Goliaths in the industry are rekindling their technology innovation projects, as can be seen from the uptake in AI/ML, block-chain, big data, advanced analytics, RPA and VR. This innovation is further fueled by fintechs and smaller scale disruptors. The Office of the Comptroller of the Currency (OCC) has also been encouraging responsible innovation with an intent to make financial products and services easier to use, accessible, and more customized to the needs of customers.

While customer facing processes and functions are heavily digitized, there is a significant need to apply disruptive technologies to the risk management function as well. The way risk can be managed is also becoming a differentiator. It can be used to understand the customers and their impact on your business better. This brings us to our experience in the use of the blockchain. For the past several quarters, we have been focusing on the application of technology disruptions to risk, and to KYC and AML in particular.

Blockchain is an exciting technology that utilizes distributed databases and cryptography to record transactions. It can be considered as a system that comprises of several huge accounting ledger databases, synced with similar transaction information. This helps bring the banks together on a network, eliminating certain redundant functions through collaboration and transparency.  A global network is important to transform payments at scale and reduce the risk of failures.

Blockchain can enable the banks to leverage the integrity and immutability of a blockchain platform to offload a function to the trusted members on the network. If fully adopted, it can also help the banks to process payments more quickly and accurately, while reducing the processing costs and time needed for the transactions.

The Blockchain technology/network can be applied quite effectively to Sanctions Screening (matching individuals and entities against government and bank specific watch lists). Some of the benefits that can accrue are:

• Up to 60% cost reduction on maintenance of sanction screening solution
• Achieve up to 30% reduction in operations cost and up to 50% when collaborating with peers
• Onboard within 3-5 weeks to a Blockchain based Screening service with minimal cost and efforts
• Fulfil audit and attestation requirements with block chain's inherent immutability

We will talk more about how this works in our next blog…