During this crisis we have found that the world is capable of going digital quickly in an emergency. The sudden and dramatic pace of change is visible across the world. As of today, countries are accepting \”alternative arrangements\” for original paper export certificates, New York is allowing notary services by video, and global banks are accepting \”original\” documents and acceptances by email.
As we leave the pandemic, we will see this digital transformation extend from individual use cases and firm-level deployment to entire industries. And maybe in no other industry is this more critical than in financial services, where the role of banks continues to be challenged because of the inefficiencies they face because of decades of siloed technology deployment.
While unquestionably a noticable difference over reliance on manual processes, regular \”digital transformation\” as implemented by a single bank has limited benefits. These typically include greater automation of economic processes, acceleration in adoption of electronic channels, elimination of manual processes, standardisation of non-value-adding business practices along with a focus on driving up data quality and speed of knowledge flows.
Now consider achieving digital transformation in the level of the entire market, rather than on a bank-by-bank basis. Whilst an electronic transformation project for a single bank might automate a company process between a front and back office, an electronic industry transformation project might optimise the trading and settlement from the asset between buyer and seller as well as their custodians too.
Of course, such things happen to be attempted before. But there has been many failures and the successes are notable because when they have resulted in new dominant centralised providers – for example for market data, messaging or settlement. The advent of blockchain architectures showed us there was a new way to tackle the problem, one which worked with the grain of existing markets.
Done right, the prize is a huge \”productivity dividend\” as entire markets are unshackled using their analogue histories.
Tackling interbank reconciliation at the industry level
The Italian financial services industry supplies a pertinent use case of digital industry transformation. 32 banks in Italy recently went accept one of the first real-world deployments of enterprise blockchain technology in interbank financial markets, with further institutions scheduled to go live in the coming months. Built through the Italian Banking Association, ABI, the Spunta Banca DLT app on R3's Corda Enterprise platform tackles the market-wide issue of interbank reconciliation.
The traditional reconciliation process for interbank transactions in Italy-formerly governed by the \”spunta\” process- is notoriously complex. Resolving mismatches in transactions is really a labour-intensive process, hampered by a lack of standardisation, fragmented communication and no \”single version of the truth.\” The Spunta Banca DLT app automates the reconciliation process and enables banks to pinpoint mismatches in interbank transactions quickly by sharing common data in a secure way.
Connecting such a large and various group of banks in a live environment to tackle a shared problem is a major milestone for digital transformation within the Italian banking sector, providing a glimpse into a brighter, more efficient and interconnected future for all financial markets.
The current crisis has accelerated the launch of technology for many use cases across a diverse range of sectors, but the ones that stand the test of time will be developed with an industry-level mindset, not firm-level. Banks must adjust to this new way of thinking about technology if they are to retain their critical role in the global economy.
Against this backdrop, it's clear that the age of inter-bank optimisation has ended – the path forward from this crisis will be paved by software that focuses on adding real value for entire markets, connecting banks to overcome the biggest challenges they share being an industry.