McKinsey: Long-Term Benefits For Blockchain Adopters in Capital Markets and Investment Banking


McKinsey & Company is widely considered to be one of the world’s most prestigious management consultancies. With clients including 80 percent of the world’s largest corporations, as well as governments, international organizations, and high-profile non-profits, the company continues to have a huge influence. When McKinsey speaks, the business world listens.

Of course, McKinsey has been following the rise of Bitcoin and the blockchain technology sector to better advise its clients. The company has also published articles and reports on blockchain technology and its applications to several sectors, in particular payments and insurance.

Simply put, blockchains could revolutionize the world’s economy. This is a view put forth by Don Tapscott, the author of Blockchain Revolution: How the Technology Behind Bitcoin is Changing Money, Business, and the World, in a recent interview with Rik Kirkland, senior managing editor of McKinsey Publishing. Publishing such high-profile articles about distributed ledgers is significant and likely reflects the advice given to McKinsey’s clients behind closed doors.

Now, McKinsey has published a report titled “Capital markets and investment banking 2016: Time for tough choices and bold actions.” Targeted at the capital markets and investment banking (CMIB) industry, the report warns that measures taken so far to enhance performance and reduce costs in the industry have mostly failed to produce the expected results, and far more radical corrective measures are needed.

“The capital markets and investment banking (CMIB) industry remains under pressure amid weak profits, high costs and lingering strategic uncertainty,” reads the report’s introduction. “The inescapable reality is that the industry’s restructuring efforts to date have failed to produce sustainable performance.”

“A more fundamental change is required, based on the realization that for most banks, the traditional model of global capital markets and investment banking is no longer an option.”

According to McKinsey, adopting advanced fintech is part of this required fundamental change. The report notes that some banks are exploring new technologies to dramatically lower the cost of transacting; for example, using blockchains in securities services.

Many large banks are struggling and will likely be forced to abandon the role of global players and retrench into narrower niches. At the same time, some CMIB businesses are performing well.

From the analysis of current trends, McKinsey expects four new CMIB models to take hold: “Global full-service players at scale across products and services (three to five banks); Focused global players with scale in select product bundles (eight to 12 banks); National or regional commercial banks with strong corporate franchises and CMIB product factories; Non-bank competitors starting out in specific areas and then expanding into related businesses.” According to McKinsey, the largest banks will be forced to rethink their business model because while there’s very limited room at the top, there are other opportunities in well-focused niches.

For each model, the report provides valuable advice on opportunities, risks and implementation strategies. McKinsey has identified eight key initiatives that bank leaders need to undertake in order to transition to a successful operating model, regardless of which of the four business models they pursue.

Two of the recommended initiatives are especially relevant to Bitcoin Magazine readers: “implementing a new cost framework, fully leveraging digital technology across the organization,” and in particular, “participating in industry utilities, including distributed ledgers.”

“In the coming years, blockchain technology could deliver a broad range of benefits — including faster clearing and settlement, ledger consolidation, consolidated audit trail, reduction in systemic risk and operational improvements — to firms across the capital markets industry, from clearing houses and exchanges to prime brokers and banks,” notes the report. “Some of the most promising use cases for blockchain are in areas such as OTC derivatives and repo (particularly if combined with central clearing).”

“In each case, McKinsey expects long-term benefits in the billions of dollars, although these benefits may take five years to materialize. In OTC derivatives, blockchain could create $4 billion to $7 billion in value through lower counterparty risk and operational costs. Streamlined operations, instant settlement and better visibility could reduce counterparty risk capital costs from $4 billion to $2 billion; better collateral management could save $500 million to $1 billion; and streamlined client onboarding, trade processing and settlement in the back and middle office could deliver $1 billion to $2 billion in savings.”

Of course, there are challenges to overcome before distributed ledgers can be routinely deployed in CMIB, including the currently low transaction rates. However, McKinsey expects these challenges will be overcome with time, especially if market participants, regulators and technologists cooperate; it notes that the CMIB industry is already deriving significant value from the use of blockchain technology in areas like digital cash, KYC/AML and identity.

Another interesting recommendation in the McKinsey’s report is to leverage advanced analytics, machine learning and robotics. Though these technologies have only loose links to distributed ledgers at this moment, it’s likely that future smart contract and programmable money platforms could benefit from advanced analytics, machine learning and artificial intelligence.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



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