Blockchain isn't a secret. You’ve read about it, heard about it and, perhaps, found yourself in discussions about it.
It is, after all, among the fastest-evolving areas of technology. Yet blockchain still is often misunderstood, leaving credit union executives and technologists wrestling with one major question: Why should I care?
It's a fair question that stems from understandable skepticism. You might suspect it's simply the latest tech fad. Or maybe you think it applies only to the megabanks, not your department or credit union.
The answer goes straight to the bottom line: Blockchain matters because it holds the potential to fuel your credit union’s growth by improving the transparency, auditability, security, and speed of financial transactions and applications.
Those characteristics are fundamental reasons why everyone in financial services should care about blockchain.
So, how does it work and what can it do? The best way to reach those answers is to understand the three foundational elements of blockchain.
1. It's a basic protocol, not a complicated new product
Blockchain is an evolution of current technologies, not a revolution. It can be a purpose-built distributed ledger that allows for virtually anything of value to be transparently traded, tracked, and verified.
For all involved parties, blockchain employs an integrated smart contract, rather than one applied from outside the system, that establishes the rules of business and speeds up the process.
Practically, blockchain is a network that lets participants transfer ownership of digital assets and then records those transactions on the ledger in real, or near real, time.
All of the participants have access to the ledger, making it a single source of truth for all transactions.
There are many types of blockchains. Most either are permissioned (private) or permission-less (public).
As the names imply, a permissioned design requires pre-established and approval-based access to create, manage, transfer or seal any digital assets. Permission-less blockchains allow for self-registry and identity-less access.
For financial services, the most secure and practical type is a private blockchain. Only known participants and digital assets are permitted to use that type of network design.
The distributed ledger design enables multiple points of real-time verification and validation, meaning all transactions are 100% auditable. Instant transaction delivery increases end-to-end functional confidence and leads to faster, more accurate reconciliation than with traditional books and records.
Blockchain also enhances security by ensuring all parties are known, all transactions are cryptographically verifiable, and no private data ever leaves the credit union.
2. Blockchain can help you grow
The characteristics of blockchain may open the doors to multiple applications. That, in turn, can position credit unions to achieve their shared goal: growth.
For areas where credit unions excel, like lending, blockchain technology can be used to bring additional speed and cost reduction to every phase of the lending process.
From tracking the potential borrower to the exchange of key data with third parties to movement through the pipeline to servicing, the distributed ledger and public/private security aspects can reduce the cost to originate a member’s loan and to sell and manage the loan on the secondary market.
To accelerate growth, blockchain may enable credit unions to make partnerships happen faster in a safer environment.
3. It offers practical applications
Pick a service that involves moving assets and it's likely blockchain has the potential to play a role.
It could transform person-to-person payments, data sharing, person-to-business money transfers, mortgage pools, securities exchanges, or even movement of frequent-flyer miles to name a few.
For instance, our research has shown people value real-time speed, both in accessing their money and in making their payments. Blockchain offers one path for credit unions to meet those expectations.
No matter how it's used or what applications still are on the horizon, blockchain has transformative potential for those who dig in and understand it. Top organizations are testing its use cases.
Now is the time to take a long-term, purposeful approach to finding the most valuable areas and smart ways to leverage the value that blockchains create.
MARC WEST is chief technology officer and MATT WILCOX is senior vice president, marketing strategy and innovation, Digital Banking Group, for Fiserv.