GCC needs to adopt effective block-chain solutions, says Booz Allen Hamilton

The Gulf financial sector needs effective block-chain solutions in their future operations, which could strengthen retail payment infrastructure and also ensure cost effective remittances, foreign exchange, trade finance and capital markets, according to Booz Allen Hamilton, a global management and technology consultant.The GCC central banks can take the lead and collaborate with financial firms to test and utilise the technology; while also address broader issues on regulation and infrastructure development, it suggested.“We are seeing significant momentum now at the global level which means that GCC institutions need to start planning the most effective ways to engage and implement block-chain solutions into their future business operating models,” said Lutfi Zakhour, senior vice president, Booz Allen Hamilton, Middle East and North Africa.Finding that most GCC (Gulf Cooperation Council) countries rely on national market infrastructures which have traditionally not been developed for retail payments that are real time and 24 hours a day, seven days a week; it said block-chain technology-based systems can bring vast efficiency gains to specific countries by speeding up deals and reducing costs, providing near instantaneous clearing and settlement, and managing complete transaction records that would boost transaction data accuracy and allow for improved monitoring by regulators.Although implementation of block-chain will require initial investment to upgrade or replace existing systems; this will most likely be an easier option for GCC countries with little or immature payments infrastructure, which could leapfrog implementations of additional central infrastructure by developing and adopting block-chain based systems.The central banks could develop payments infrastructure and systems to make them block-chain compatible or commercial banks within these countries could collaborate on an equal partner basis to develop a co-owned block-chain payments system; both of which could lead to “significantly” reduced payment costs, it suggested.There is also an increasingly prevalent option where commercial banks partner with specialised fintech firms and startups to develop a block-chain based payments system by either entering into formal partnerships or through equity investment into the fintech provider.Highlighting that the remittance market could also benefit from block-chain adoption; it said the GCC account for an estimated $98bn in annual outward remittances, which are likely to continue to grow, given the large size of migrant workers.Given the scale of the remittance market in GCC countries, this is an area that merits further exploration by banks and exchange houses alike, it said.At present, transaction costs are relatively high and take at least 2-3 days to clear, reflecting the complexity of the clearing and settlement, particularly for banks which typically rely on correspondent networks, the report said.On trade finance, it said the block-chain technology could yield significant benefits. Having all parties on a common system with permissioned access will enable real-time exchange of information, increase speed and provide visibility as to the transit of goods and flow of information. Currently, trade financing is a complex process and involves several manual checks to verify the legitimacy of a client, its trading partners and the goods that change hands; making the system slow and costly. Similarly, syndicated loans suffer from manual intensive processes, lengthy processing and settlement, and multiple parties involved in the structuring and issuance of debt.Finding that foreign exchange has been experiencing growth in the GCC over the course of last decade, notably for dollar and euro, with total trade volume growing 50% yearly since 2011; it said block-chain technology could be utilised to meet this increase in demand to enable direct, peer-to-peer transactions.“This would enable parties to access a much larger pool of potential currency exchange counterparties than the current intermediaries, thereby driving down costs and increasing speed of transaction,” it said.Block-chain development by GCC exchanges could likely increase capital market activity for corporates while boosting small and medium enterprises’ financing for privately held companies, it added.