A ship pulls into port with a big delivery. A GPS system confirms the ship is in port and triggers immediate payments to the shipping company and the supplier. The payment, instead of taking two to five business days to cross borders, shows up almost immediately in the supplier’s bank account, with all the agreements and transactions confirmed in seconds across a blockchain system, using cryptography and a distributed ledger instead of a correspondent bank.

Banks and the financial services industry are making big investments in blockchain technology, the same kind of cryptography software behind Bitcoin.

Blockchain is essentially a shared ledger of transactions, using complicated cryptographic algorithms to verify transactions as they occur. The ledger is stored in full across the different users, creating a more secure system because the data is distributed among many computers that verify what’s on one another, but each user can access only their own data. Think of the exact same ledger book at five different banks and each book is updated almost simultaneously; that’s what the blockchain does.

Banks and financial services companies are starting to develop their own blockchain software, and a host of new startups are trying to make their way into the market to make transactions faster and more secure using custom electronic “cryptocurrency” similar to Bitcoin.

Global impact

The future impact of blockchain technology stretches across every sector of the global economy and is sparking major investments across the financial services industry. When banks can take two business days or even up to a week to make a cross-border transfer, blockchain can do it almost immediately.

“Everything could be affected,” said Alexandra Simonova, a manager for enterprise risk services for Deloitte in Cayman.

Blockchain, she said, takes banks out of the equation. Transactions need a trusted authority like a correspondent bank, but blockchain creates trust by decentralizing the ledger so each node in the network verifies the others. “The efficiencies come from eliminating the central authority,” Simonova said.

Without the need for correspondent banks as middlemen, she said, blockchain can decrease the compliance burdens on financial institutions and increase transparency at the same time. With the distributed ledger, Simonova said, “all the transactions are right there.”

The technology opens the door for smart contracts that can trigger immediate payments. It can change how gift cards work at a store. It can change how insurance companies interact with each other and their customers. The Republic of Georgia is piloting the system for land titles with software from BitFury.

BitFury CEO Valery Varilov in April told Forbes, “First, it will add security to the data so the data cannot be corrupted. Second, by powering the registry with the blockchain, the public auditor will also make a real-time audit. So the auditor will audit the registry not once per year, but every 10 minutes [for example]. Third, it will reduce the friction in registration and the cost of property rights registration because people could do this in the future using their smart phones. Blockchain will be used as a notary service.”

From the lab to the market

Deloitte this year announced plans to staff a new blockchain lab in Ireland with 50 developers to work on the company’s own prototype, built in partnership with a group of blockchain startups.

Simonova said Deloitte plans to offer customized blockchain platforms for clients built on top of the consultancy’s core software.

Venture capitalists and major companies are starting to make big investments in blockchain startups and in-house development. A recent Greenwich Associates report estimates that financial services and tech firms will invest US$1 billion in blockchain technology for capital markets in 2016.

Nasdaq is testing blockchain software from Chain OS on the Nasdaq Private Market. Visa, Citi, Fidelity and many others have invested in Chain OS, a startup developing open-source technical standards for blockchains to handle a large transaction volume needed for a company like Nasdaq.

PwC has made investments similar to Deloitte, adding 15 developers to its lab in Belfast working on blockchain technology.

In a statement, PwC Partner Steve Davies said, “There’s clear evidence that banks, institutions and even governments are looking at blockchain technology as a secure storage and distribution solution.

“Now there is growing interest and a real demand from our clients to help understand the implications of blockchain and how to respond to it. So, as the blockchain juggernaut continues to gather pace, PwC will be well placed to service our clients’ needs at a global level,” he said.

San Francisco company Ripple in late June announced that the company had added seven banks to its online payment platform, including UBS, CIBC and the National Bank of Abu Dhabi. In May, Ripple client Santander became the first bank in the United Kingdom to use Ripple’s system for cross-border payments.

Ripple allows users to make international payments through an app based on the company’s blockchain technology. Santander’s in-house test allows its staff to make payments from a smartphone app to transfer from 10 pounds to 10,000 pounds into euros or U.S. dollars.

In a statement in June, Ripple CEO Chris Larsen said, “We’ve reached a tipping point where financial institutions are moving beyond blockchain experimentation and projects to real world applications that are driving significant bank-to-bank volume.”