Banks and Blockchain: Wait-and-See Approach or FOMO?

While banking institutions' attitudes towards Bitcoin and blockchain has changed significantly, there is still a notable attitude of blockchain over Bitcoin which is still a bit counter-intuitive.

World BankWhile technically not a bank in the strictest and most-understood notion of the word, the World Bank is another financial institution that is in the process of discovering the advantages that blockchain technology can bring to their specific needs.

According to Vincent Launay, an infrastructure finance specialist at the bank, the lab was launched in June 2017 as a way for the institution to try and see what potential there was in blockchain aiding in ending world poverty, but also how it can help their clients leapfrog existing and unsuitable technology.

International Monetary FundOne organisation that is formally looking into blockchain technology, and is quite vocal about it, is the International Monetary Fund, which although not a bank in the typical sense, also sees benefit in blockchain.

Farzam Ehsani, a former blockchain lead at Rand Merchant Bank and now co-founder and CEO of VALR, says that most major financial institutions now have some sort of blockchain initiative within their company.

"All banks are realising they need to get onto this boat, I don't think many banks necessarily understand where the boat is going, but they realise that this is a development that is taking off and that if they want to be on this journey that everyone is going on, they need to be on the boat."

"We built several blockchain networks, some by ourselves, to understand the technology, and others with the industry to explore consensus algorithms. We forked the Bitcoin blockchain, conducted atomic swaps on a permissioned Ethereum blockchain, and explored smart contracts with financial instruments."The Reserve Bank right now, with some of the settlement banks in South Africa, are busy with Project Khoka - which aims to replicate interbank clearing and settlement using distributed ledger technology.

"Many banks are taking a wait-and-see approach, that is because a lot of them don't necessarily have all the knowledge in house to understand the trends or how powerful the technology is. A few of them are starting to enter partnerships with blockchain startups," Ehsani adds.

"Different banks are taking different strategies. Certain banks are certainly taking a wait-and-see approach, as they do not want to be first to the party because it is perceived to be too risky, and they do not want to jeopardize their regulatory standing, nor reputation in the market, so they have to wait to see what others do, and if they have to pay a premium to buy a start up, then they will do it."

Banks have a long way to go to transform their business model, but as society changes and the needs of the population moves forward, the banks realize they have to evolve.