Blockchain Could Reduce Losses From Bank Fraud by $9 Billion a Year


A new report by McKinsey & Company, one of the largest management consulting firms in the world with revenue of nearly $9 billion a year, estimates that the appliance of blockchain technology can reduce annual losses from bank-related fraud by as much as $9 billion.

The report published a few days ago, takes a closer look at the relationship between retail banking and blockchain. While banks have been heavily investing in the exploration of possibilities that are emerging with the blockchain technology, masses are more interested in how their daily life can be improved and that’s where retail banking comes into place.

Recently, Newconomy took a closer look at how the blockchain is penetrating people’s daily life and how different projects initiated by banks look at ways of applying the blockchain technology and, for instance, use cryptocurrencies, to conduct cross-border payments.

However, at this current point in time, retail banking is taking a back seat as corporate banking teamed up with blockchain to lead the banking evolution process.

“Early enthusiasm for blockchain technology among capital markets, infrastructure firms, and wholesale banks has not been widely mirrored in the retail sector,” the report notes.

To this end, the prestigious consultancy looks at the potential for retail banking. By applying blockchain’s three key strengths – data handling, disintermediation, and trust – McKinsey sees three important use cases for retail banking: remittances, KYC/ID fraud prevention, and risk assessment.

In the last couple of months, Newconomy has widely reported on numerous crypto-backed projects aiming to facilitate easier remittance transfers. For instance, Western Union agreed on a partnership with, the Philippines-based e-wallet providers, to enable millions of customers in the Philippines to receive international and domestic money transfers directly in crypto wallet.

“We are giving Filipinos a seamless choice to receive money digitally, on the go,” said Ron Hose, the co-founder and chief executive of Enabling millions of people to easily receive funds from their relatives and friends from diaspora, is the exact use case which shows that appliance of blockchain technology can help people improve their daily life.

Given the estimate that cross-border payments internationally amount up to $600 billion a year, and it keeps growing, the application of blockchain in this sector may be extremely valuable.

“If counterparties were to exchange cryptocurrency assets (digital currencies that do not need a central regulating body) rather than fiat currencies, for example, payments could be made and settled in minutes via blockchain, rather than in days as with current systems,” McKinsey adds, while the estimate is that blockchains applied to cross-border payments could save about $4 billion a year, in addition to improved transparency and immutability.

This estimate is in line with a forecast from other major financial institutions, Spain’s Banco Santander, which published a report noting that banks can reduce costs associated with cross-border payments, securities trading, and regulatory compliance by between $15-20 billion per annum by 2022.

“By leveraging blockchain technology, IIN will significantly reduce the number of participants currently needed to respond to compliance and other data-related inquiries that delay payments,” JPMorgan Chase said in a statement about its blockchain-based Interbank Information Network (IIN); a project set up in partnership with Australia’s ANZ bank and the Royal Bank of Canada in 2017. In total, 220 banks joined the project, which aims to quickly address payments that contain errors, or transactions that are held up for compliance reasons.

A report from WealthInsight estimates that anti-money laundering (AML) spending from banks supposedly exceeded $8 billion in 2017. A decentralized element of blockchain can improve fraud-combating structure developed by banks, for instance, by the application of the blockchain-based technology to enable customers to use a digital fingerprint.

“The decentralized blockchain structure eliminates overlapping KYC and AML compliance checks (banks share authenticating information), lightens the information burden and allows banks to disseminate data as it is updated,” adds McKinsey.

Instead of operating a complex and expensive security system, banks can use blockchain technology to allow customers to control and share their personal data without the help of a mediator.

In this sector, the consultancy firm forecasts savings up to $1 billion in operating costs for retail banks, in addition to $2 billion to $3 billion in savings from reducing regulatory fines.

“We expect blockchain solutions to reduce annual losses from fraud by $7 billion to $9 billion,” highlights the report.

Finally, risk assessment is another sector where retail banks can make significant improvements and cost-saving by applying blockchain technology. By pooling large volumes of data, anonymized and protected by distributed ledger technology (DLT),  banks have better access to data and ultimately make an informed risk-associated decision.

Spring Labs is considered to be one of the more advanced startups working towards “facilitating the exchange of identity, fraud, and risk information among financial institutions to create a more efficient, transparent, and secure ecosystem for consumer financial data”.

A few months ago, Newconomy reported that the car giant General Motors (GM) joined Spring Labs’ Spring Founding Industry Partners (SFIP) Program, which is designed to further combat fraud, while enhancing ID verification capabilities.