Over the next decade, the global financial market will continue to be the largest value market utilising blockchain technology
Blockchain is set to transform the financial industry.
It seems that barely a day goes by without an announcement about banks and financial institutions using blockchain technology to transform significant parts of their businesses.
Are these stories all hot air? Well, not entirely. The value of blockchain in the financial sector reached $1.9bn in 2017, according to business information provider IHS Markit.
But, this is an insignificant amount, compared to what IHS Markit predicts for 2030. With the projected increase in the number of blockchain projects expected to launch and become commercially deployed in the coming years, revenues are projected to reach $462bn.
It is true, the application of blockchain technology is set to exponentially increase in a variety of sectors — especially finance, but such a dramatic increase in market value raises questions.
Don Tait, principal analyst, IHS Markit, believes it is entirely feasible: “The Securities and Exchange Commission in the United States, the Financial Conduct Authority in the UK, the Hong Kong Monetary Authority and other regulatory bodies are reacting positively towards blockchain technology within the financial sector.
“The backing by these regulatory bodies bolsters the credibility of blockchain technology, helping it become more mainstream.”
This is not unheard of, and the same optimism applies to cryptocurrencies (based on the blockchain). If AML and KYC regulations can be built into virtual currencies, they are more likely to see traditional investment filter into the cryptomarket.
Will regulation backing catalyse the blockchain market explosion in industry?
IHS Markit maintains there are numerous ways the financial industry can leverage blockchain, including cross-border payments, share trading and syndicated lending. Over the next decade, the global financial market, which includes insurance and fintech, will continue to be the largest value market using blockchain technology.
The financial sector includes markets of significant value, and even a small percentage of cost savings and efficiency gains can lead to significant business value for companies and industries that introduce blockchain technology.
The derivatives market, for example, is worth around $544 trillion a year and the market capitalisation of all the world’s stock markets is equal to $73tn.
“By applying blockchain to the clearing and settlement of cash securities – specifically, equities – investment companies could save up to $12 billion in fees,” Tait said.
“Blockchains can also save financial organisations money, by cutting out many of the traditional middlemen involved in the financial sector.”
The IHS Markit “Blockchain in Finance Report” examines the global market for blockchain in the financial sector. It provides a current snapshot of this market and examines the factors that are projected to hinder and drive growth in the blockchain market from 2017 to 2030.