Executives at the world's investment banking centers face mounting pressure to justify expenses that seem to grow faster than profits. A new collaborative analysis from Accenture and McLagan offers a
Executives at the world's investment banking centers face mounting pressure to justify expenses that seem to grow faster than profits. A new collaborative analysis from Accenture and McLagan offers a potential lifeline: blockchain technology might slash operating expenses by more than 30% in middle and back-office divisions, potentially generating $8 billion to $12 billion in aggregate annual savings.
The study, "Banking on Blockchain: A Value Analysis for Investment Banks," examined operational cost patterns across eight major institutions. Its findings reveal a troubling reality: roughly two-thirds of technology budgets flow toward maintaining aging infrastructure, while billions more get spent annually on initiatives aimed at containing costs. Neither approach addresses root inefficiencies.
Blockchain's architecture—featuring cryptographic hashes, distributed databases, and consensus-driven protocols—enables fundamentally different ways to exchange information and transfer assets. By removing intermediaries, eliminating centralized gatekeepers, and automating reconciliation procedures that currently demand substantial human attention, the technology could reshape transaction flows. Use cases range from trade confirmations and settlement matching to liquidity management and operational exception handling.
The acceleration of settlement cycles alone could deliver transformative benefits. Blockchain might compress delivery-versus-payment intervals and enable retirement of major legacy systems. Individual operational functions would see dramatic impact. Finance reporting could contract by 70% thanks to superior data quality and transparency. Compliance expense might fall 30% to 50% at the product tier through enhanced auditability of transactions. Customer onboarding and identity verification, typically managed through centralized systems, could shrink by 50% using more efficient protocols. Trade support, middle-office management, clearance, settlement, and investigation functions could all experience 50% cost reductions.
Capital markets participants have already signaled conviction. Companies in the space deployed $280 million toward blockchain initiatives during 2016, according to Greenwich Associates research.
David Treat, who directs Accenture's financial services blockchain program, explains the urgency: "Given the tremendous cost of data reconciliation – which is part of every aspect of the capital markets industry – it's no surprise that we've seen a significant amount of investment in blockchain technology. But, as with any emerging technology, understanding what these investments might yield is a challenge. As we move into production implementations, bank executives will need a clear roadmap for how and where to rethink their strategies and redesign their operating models, which is why we undertook this unique study."
Regulatory requirements and squeezed margins are forcing financial institutions to explore emerging technologies, according to Richard Lumb, group chief executive for Accenture's financial services division. A Financial Times analysis underscores the desperation: during 2016's initial months, the sector's largest participants saw combined revenues plunge 15%—a deterioration unmatched since the global financial crisis concluded.
Chris Blain, partner at McLagan, views blockchain's potential more broadly: "Blockchain technology could significantly change the cost structure of investment banks over the next decade. The technology represents a potentially important breakthrough at a time when leading investment banks are looking at myriad ways to rebuild their returns on equity."
Whether banks can translate this technological promise into measurable business results remains uncertain. But the financial calculus appears inescapable—legacy systems impose hidden costs that blockchain might finally bring within reach.
