Blockchain is poised to disrupt financial services and beyond. For community bankers, this is a good thing so long as we start thinking about the ways we can benefit from distributed ledger technology sooner rather than later. In some respects, this will mean pooling our efforts.
Blockchain is most widely known as the platform to house virtual currencies such as bitcoin, ethereum and litecoin. But the uses for blockchain are going well beyond virtual currencies. The Republic of Georgia, for example, voted in April 2016 to implement a land ownership registry that relies on blockchain to verify ownership of property. If the United States did something similar with blockchain, banks could close real estate loans more quickly. Think about a world where ownership interests in real estate can be verified immediately and with certainty.
In this world, the expansive role of the title agent would essentially dissipate (or be greatly minimized), the time taken to verify title would be eliminated and, most important, the cost associated with confirming a title interest through title insurance would be dramatically reduced. All of these results would improve the closing process, both from an efficiency standpoint for banks and from a cost standpoint for the customer.
Technologists are also using blockchain to try to replace our needlessly difficult residential mortgage loan origination processes so that the process, from application to closing, can be reduced from a few weeks to a few days. Blockchain can also serve banks in the realm of the Bank Secrecy Act — where a distributed ledger can allow banks to share information on a publicly accessible (yet secure) platform. True, gaining BSA efficiencies by using blockchain would involve a few more hurdles from a regulatory and collaboration standpoint. However, the upside of time and money saved would be significant.
To realize these kinds of opportunities, community banks in a region should collaborate on strategies to bring blockchain into the banking industry.
Often, as community banks, we are unable to hire teams for the establishment of new solutions; however, we can assign a thought leader on a subject, such as blockchain, and we can coordinate times when the thought leaders from each institution collaborate with one another. For instance, r3 is a consortium of banks that are working together to build a distributed ledger specifically for financial institutions. Community banks should take advantage of opportunities like this to get the most out of the technology.
True, ultimately software and technological solutions are often too expensive for community banks compared with the massive big-brother banks that have the ability to throw a few million dollars at an idea like blockchain just to stay on top of the technology. Furthermore, community banks rely on the big four vendors (FIS, Fiserv, Jack Henry and D+H) for core banking software. So it is only through the core banking vendors that we can penetrate this new technology at a speed similar to our much larger competitors. Therefore, we need to begin discussions with these larger vendors now. We must let them know we are watching and we are interested. The vendors need to hear this message from multiple banks, and when they do, they will be as interested as we are.
Rest assured, these vendors already know what blockchain is, but they need to understand that we want to benefit from the technology — that we do not want to be caught in the dust when larger banks begin to implement it.
Blockchain is a technology that is coming, and our imagination is the limit to how much value it will provide. But we will only realize these efficiencies if we work together.