UBS blockchain expert: Blockchain + cross-border payment = the nemesis of banks

Technological innovations, challenging economic conditions and changing consumer expectations are constantly challenging the position of the banking and financial services sector.

We recently interviewed Oliver Bussmann, a banking technology leader, about these questions. He is the Chief Information Officer (CIO) of the Union Bank of Switzerland (UBS) and is also recognized as the "blockchain expert" within the company. UBS is the world's largest private bank, managing nearly $1.74 trillion in assets.

Why is blockchain so important?

Michael Krigsman (MK): Of the technologies you mentioned, we all heard about blockchain. Can you briefly talk about blockchain? What is blockchain? Why is it so important?

Oliver Bussmann (OB): For me, it was a great experience to be involved in the research of blockchain technology in its early stages. For example, Mobile Enterprise applications emerged 6 or 7 years ago. SAP realized the potential of this technology at the beginning, and then formed a team to learn about it. From a small team, it gradually developed into a leader in the industry. It can be said that they are very successful.

SAP's story is similar to my experience in blockchain research. We found that people tend to overlook blockchain, and we were inspired to study this technology by a Swiss entrepreneur. He believed that this technology could be used for online foreign exchange trading and real-time settlement. Usually, the settlement time of stock transactions takes at least two to three days because of the time required for the conversion between cash and securities. But he told us that with blockchain, the settlement time will only take seconds, the operating cost will be reduced, and the real-time settlement mechanism will reduce operational risks, and risk capital will also be reduced. We just responded, 'This is incredible.'

Then we learned that blockchain is the underlying technology of Bitcoin and will become an important factor in simplifying our workflow. Most banks avoid talking about Bitcoin, so it is difficult for us to discover the advantages of blockchain.

Let me give you a specific example: Today's securities trading involves multiple parties. The sale of securities involves buyers, banks, stock exchanges, clearing houses, etc. There are at least ten different institutions involved, each of which performs its own duties and plays a certain coordination role. But in the blockchain system, you only need to store relevant information in the network. It is like a database. After being set in advance, the content in it is locked and not controlled by anyone. In addition, as a software mechanism, it can also verify the authenticity of the transaction, so there is no need for the participation of a third party, and the complexity of the transaction will be greatly reduced.

In addition, businesses can also improve efficiency. Bitcoin is essentially a public ledger, so we can query the information in the blockchain at any time and anywhere. Cryptography settings can provide security protection to ensure that only specific parties can access the data. In my opinion, blockchain can change the rules of the game, not only in the financial services sector, but also in other fields such as insurance, trade finance and the Internet of Things (IoT).

The transmission of information must rely on specific conditions. How should this process be completed? Smart contracts are the answer. For example, if your refrigerator is equipped with a sensor, what should you do if the refrigerator is empty? You must set up such situations in the smart contract in advance, right? This is why technology giants such as IBM are obsessed with blockchain and the Internet of Things.

I would say that blockchain today is like the Internet 20 years ago, which is enough to change the rules of the game, and its influence is not limited to the financial services industry, but also to government, healthcare, supply chain management, etc. Different projects need specific technologies to assimilate, and blockchain is such a technology.

MK: Have banks or other large organizations started to explore some meaningful use cases for blockchain, or is it too early to talk about applications?

OB: No, the first blockchain use case has already appeared. The payment field has always been the primary target of blockchain applications because this industry is highly profitable and has many possibilities. From the user's perspective, it is necessary to optimize the payment process.

The most important part of this is cross-border payment. Whether it is retail finance or corporate finance business, as long as it involves cross-border transactions, it must be reviewed by multiple central banks, which takes a lot of time and the average handling fee for each transaction is as high as $25. Payment book providers such as Ripple can simplify this process, and many banks have already started research in this area. They use blockchain technology to build an interbank transaction network, simplifying the transaction process, increasing speed and reducing costs: less than $1 in handling fees.

The blockchain high-speed train has already started. If you haven’t gotten on board yet, you will definitely suffer heavy losses.