UBS invests in a range of blockchain applications
UBS is investigating a range of blockchain applications including smart bonds, cross-border payment transactions, smart wallets to allow individual trading and customer loyalty programmes. UBS CEO, Axel Lehmann, believes the technology could be as disruptive as the internet and, in five to ten years, the "competitive landscape will have revolutionised." However, he added that there were still technical, security and legal challenges to overcome before the release of a public blockchain.
Blockchain technology allows a list of transactions to be shared among a number of computers, rather than on a central server, and the secure ledger updates in almost real-time across all the systems in the network. These networks can be either public or private.

Mr Lehmann's comments come after UBS released a white paper into how the blockchain could transform the sector, suggesting possibly creations like smart wallets that are connected to the blockchain and let people program their own portfolio managers.

Possible innovations

UBS suggests that in the future people's smart wallets will trade on their owner's behalf, reading the news and making trade decisions based on market developments.

Mr Lehmann said an invention like this would "go to the heart of the blockchain" in terms of how it democratises the financial system, but such an innovation would be years away.

In the nearer term, the bank is already developing smart bonds based on the Ethereum blockchain network through smart contracts, which are a series of computer protocols that facilitate a self-executing contract.

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The smart bonds would cut out the intermediaries who are currently needed to facilitate the transaction between issuers and investors, replacing them with software.

UBS has also created the Utility Settlement Coin (USC), a representation of physical currency based on digital currency, alongside a consortium of other technology and financial services – Clearmatics, BNY Mellon, Deutsche Bank, Santander and ICAP.

Mr Lehmann said there were a few examples of cryptocurrencies like bitcoin, but for widespread usage a digital currency needed to be linked to "real central money".

"The USC will have a version for each major currency. For example, the USD, AUD and Swiss franc, and the USC will convert in real time to real central bank money," he said.

Another process that could be sped up significantly through the blockchain is transactions between parties at different banks. Mr Lehmann said the bank has no immediate plans to replace the traditional letter of credit with a blockchain-alternative, but that too could be on the cards.

"We can also look at using private blockchains as a way to optimise internal processes, with a well-defined captive audience," he said.

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"We've looking into how to use the blockchain for a customer loyalty program with a distinct number of customers."

A global effort

As well as the group that created the USC, UBS is part of the R3 consortium of financial companies that are jointly research and developing blockchain applications.

A number of Australian banks have also joined R3 including the Commonwealth Bank of Australia, National Australia Bank, Westpac Banking Corp and Macquarie.



ANZ, while not part of R3, is also investing in the blockchain. It has joined major businesses such as IBM, Intel and Wells Fargo in collaborating on a project known as "Hyperledger", where they share intellectual property and resources to develop their own blockchain.

Earlier this year ANZ group strategy executive manager Nicholas Groves said public ledgers would remain too risky for banks to use for the forseeable future.

Mr Lehmann believes widespread benefits will not be realised until banks can use the public blockchain, but there are significant barriers to this and he says humans will always have a role to play.

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"There's always a concern the world is running out of labour and I don't believe in that," he said.

"It's hard to believe the human interaction will be completely eliminated, it will just be more in terms of service, needs and relationships.

Mr Lehmann said in five years there would be some tangible applications of the blockchain, but it would take a decade before business models more broadly had been transformed by digital technologies.

"We'll never really have an end state. We will go into a time of continued transformation of businesses and business processes," he said.

"Ultimately there will be less repetitive processes that we need to execute. It will be a financial system that's more democratised, where individuals can take more ownership of their destiny, but relationship managers will continue to support and advise the customer base."