An engineer, his computer and screen - and that's it for the future exchange of securities. An experiment by UBS in London shows just how «light» banking in future could be. Finews.ch was there to check it out.

Blockchain has arrived in banking. Nine globally operating financial companies have joined forces to ascertain the opportunities of the technology, which has been hailed as revolutionary (finews.ch reported on Tuesday). Arch rivals Credit Suisse and UBS are also participating.

Pooling resources for competitors in the financial market must mean they expect something rather substantial from the technology, on which for instance the digital currency Bitcoin is based: the banks obviously harbor hopes to reduce their costs by a fair amount.

Transaction Information in an Instant

Blockchain enables transactions on a purely digital basis. The information about a transaction is key, and the bits of information are continuously stored in a data base, available for inspection. This is thought to be substantially more efficient than today's payment procedures.

And there's more: Blockchain could also speed up the transaction of securities, reduce the amount of time securities are booked in a bank's balance sheet, make redundant traditional stock exchanges and minimize the compliance tsunami. Banks would be able to book enormous cost savings and see their balance sheets relieved.

«Innovation Light»

Oliver Bussmann 160And yet: this jump in the development of banking is surprisingly cheap to achieve. «Innovation light» is how Oliver Bussmann (pictured left), head of innovation at UBS, called it recently. His team at the UBS fintech laboratory in London – Level 39 – recently showed what he meant. Finews.ch was there to watch.

 

«Smart Bond»

The UBS team under the guidance of Alex Batlin developed a trading platform for «smart bonds». Finews.ch reported earlier. But on floor 42, high in the sky above Canary Wharf, there was no head of finance, no investment banker, broker, no trading floor or professional investor. In the graffiti-adorned laboratory there was a huge screen, a computer with pretty advanced software and a slightly bleary-eyed technician (pictured below).

UBSLab 500

The experiment went as follows: the screen was divided into two halves, with the bond issuer on the left and the investor on the right. In a first step, the issuer designed his offer, complete with conditions for the credit, coupon and repayment. Seconds later, the offer appeared on the screen of the investor, without any activity whatsoever by intermediaries.

Should the investor plan to buy, he first signals his intent to the issuer. If the issuer accepts, the «smart bond» takes place: a type of contract which triggers the credit, rate payments and settlement automatically, and which is easily accessible at all times for the trading partners.

Quick Development

Today, the transaction of a traditional bond takes days – not to mention the emission of the paper. The transaction in the UBS laboratory took a few minutes to complete. The installation of the software is ready within 20 minutes, according to the IT specialist. He wrote the program himself in the space of a few weeks. Batlin and his team aim to prepare a prototype ready for further development by the end of 2015.

All this happened in early September. And only a few weeks later, UBS and eight other giants of the financial industry presented their joint initiative in New York. Helping them to development the industry standard is R3, a hitherto unknown fintech company.

Compared with the sums that the banks are forced to pay to make amends for past misdemeanors, the investments in the future appear light indeed.