BROOKFIELD, Wis.—Blockchain remains largely misunderstood among many in credit unions, but it has the potential to drive credit union growth by helping cooperatives meet consumers’ real-time speed expectations and better partner with fintechs, according to one analyst.
Marc West, chief technology officer with Fiserv, shared how his company views blockchain and its potential benefits for credit unions, which include the ability to transform P2P payments, data sharing, and person-to-business money transfers.
“How blockchain holds the potential to fuel growth of CU business is by improving transparency, auditability, security and speed of transactions and apps,” said West. “Transparency in the way blockchain works; such as smart contracts. For example, you and I exchange documents, say a disclosure for a loan, and one copy is loaded to the blockchain. You can’t change the documents unless all those with access to the documents agree to the change—256-bit AES military grade encryption ensures that nothing can be changed unless there is agreement. That is the immutability of blockchain and that leads to greater transparency.”
Transaction Speed
West said that since everyone with rights to a document work on the same document, that the speed with which transactions are completed and services delivered markedly improves.
“Today, the way that data and loans, for example, are managed is through independent applications used by different parties that try to interface,” he explained. “If I want to change some documents I have to send them to you, you have to receive them, place them in your database. You make adjustments to them and then give me back the pages. Again, in the blockchain we are all working off the same documents in the same system, which is much faster and more efficient.”
West emphasized that blockchain plays a role in services that involve moving assets—meaning it can transform P2P payments, data sharing, and person-to-business money transfers.
“I put $100 in the blockchain and give you permission to take one dollar, those payments now become more fungible,” he explained. “Once you take currency and digitize it, the ability to pay is about equal to what we have via the traditional payments rails. That opens up a lot of different avenues we are just starting to explore.”
While blockchain will help the speed delivery of P2P payments, West emphasized that blockchain is not suited for high-volume-low-dollar transactions.
“So it’s not for something like what Venmo does, casual payments, such as splitting a dinner check,” he said. “It’s more for, say, paying rent or bills. I also see blockchain as very workable for foreign exchange (and) across-border payments.”
West said that blockchain should also help CUs “meet the real-time speed expectations of consumers.” But, he added, that improvement won’t result be from credit unions leveraging the blockchain to compete against fintechs, for example. Instead, he sees credit unions using blockchain to more effectively partner with fintechs to increase their own service delivery.
“We look at blockchain as potentially being a way to work better with fintechs and then bring more value to their members in a secure, immutable, transparent and near real-time ways,” West said.
Greater Regulatory Oversight
West noted that blockchain also allows for greater regulatory oversight of transactions.
“Auditability is a key piece of this,” he said. “It’s very interesting. You can create near real-time audits of transactions with blockchain.”
West acknowledged that blockchain is a technology that is not easily understood, and that he uses a “safe deposit box” analogy to explain the workings of blockchain to those who ask for an explanation.
“It is difficult to understand the blockchain,” he said. “It’s like describing the Internet. You don’t go out and buy an Internet, you use it, and blockchain is a protocol that you use—it’s not a database, not an online banking platform, not a core system. It’s a protocol. It basically acts like a set of safe deposit boxes. You need to think of blockchain as a cryptographically sound safe deposit box system that you store things in, which you then give access to or transfer ownership of those things you store to someone else by giving them a purposeful key.”