Accenture expands financial services blockchain footprint

23 February 2016

Blockchain technology is estimated to have the potential to save the financial services industry up to $20 billion by 2021. Interest in the technology has as a result been gaining speed, with consulting firms joining the bandwagon. In a bid to stay ahead of the game, Accenture has launched a new, dedicated blockchain practice, as well as struck a partnership with blockchain expert Digital Asset Holdings.

Blockchain technology has been garnering considerable interest within the consulting industry in recent years. The technology provides a range of potential solutions to issues faced by financial services players in a number of domains. The technology, which provides a distributed public ledger, is highly tamper and revision proof, bolstering security, as well as reducing the costs involved with managing the network. Industry estimates suggest that blockchain technology has the potential to knock more than $20 billion annually off the costs in the financial services industry by 2021.

Blockchain technology

Not surprisingly, in a bid to capitalise on the potential, organisations are ramping up their investments in the terrain. Investment into blockchain-enabled functions are estimated at $75 million in 2015 growing to $400 million by 2019.

Among the consultancies expanding its blockchain capabilities is Accenture, with more than 370,000 employees one of the largest players in the advisory and technology landscape. The firm has unveiled that it has launched a specialised blockchain practice targeted at financial services industry demand. The new service line will be part of the firm’s wider financial services group, and is aimed at supporting the integration of blockchain technology into operations, allowing financial services clients to increase operational efficiency, security, and client service, as well as to capture new revenue channels. The new practice is already providing advisory support to a number of major banking institutions and regulators, says Accenture.

“Blockchain and distributed-ledger technologies enable the financial industry to move away from reconciliation-based processes that are expensive and inefficient,” says David Treat, Managing Director and Global Head of Accenture’s capital markets blockchain practice.  “Our new practice, which builds on the strong growth of our global capital markets business, can help clients move from concept to production in the shortest possible time, improving efficiency and unlocking new revenue streams.”

Digital Asset Holdings
One of the first announcements of Accenture’s new practice is that the firm has entered into partnership with New York headquartered Digital Asset Holdings. Founded in 2014, Digital Asset Holdings provides blockchain settlement and ledger services for financial assets. The company’s various solutions provide improvements to post-trade processing efficiency and security, while reducing cost, latency, errors, risk and capital requirements.


Through the partnership, Digital Asset will gain increased scope and scale of its operations to an expanded range of global clients, as well as considerable support from Accenture in the areas of feasibility studies, business case assessments and operating model design through to full-scale systems integration, cybersecurity and cloud consulting. Accenture’s investment in Digital Asset Holdings is part of a $50 million round of funding collected by the company last month* – the capital provided by the consulting firm has not been disclosed.

“Accenture is a renowned leader in large-scale systems transformation and the development of complex technology infrastructure,” says Blythe Masters, CEO of Digital Asset. “Working together, we can dramatically accelerate the adoption of blockchain technology globally. Our products and software combined with Accenture’s expertise at integrating new technologies with existing systems will help institutions reduce settlement latency, risk, operating costs and capital requirements.” 

The consulting firm has also become a member of the open source Linux Hyperledger project. The project seeks to leverage blockchain digital technology for recording and verifying transactions. Other recent investments in blockchain technology completed by Accenture include the launch of a Blockchain Centre of Excellence in Sophia Antipolis, France, and an investment in Ripple.

In a similar deal, Digital Asset Holdings also signed partnerships with Broadridge and PwC.

* Other firms that participated in the funding round are ABN Amro, ASX Limited, BNP Paribas, Broadridge Financial Solutions, Citi, CME Ventures, Deutsche Börse Group, ICAP, J.P. Morgan, Santander InnoVentures, The Depository Trust & Clearing Corporation (DTCC) and The PNC Financial Services Group.



The business and operating models of digital-only banks

04 April 2019

In recent years, several digital-only banks have successfully managed to nestle themselves in the banking landscape, with their popularity continuing to increase. Looking at it from the customer’s point-of-view, there is little difference between these FinTech unicorns; looking at the bigger picture, however, reveals significant variation in their business models. Matyas Fekete, a consultant at KAE, explores some of the main similarities and differences in digi-bank business and operating models. 

What about the profit?

Unlike in the UK, in most of continental Europe, bank accounts and corresponding banking services are historically paid-for services. The fact that digital banks offer most of their services free of charge has undoubtedly helped them build a large customer base. On the other hand, despite comparatively low set-up and minimised operational costs compared to that of traditional banks, and given the lack of revenue stemming from the typically no-fee model, profitability has proved difficult to achieve. Monzo, for instance, recorded a net loss of £30+ per customer in its most recent financial year. 

In the start-up world, it is customary to focus on expansion rather than profit – see the case of Uber, for instance. Still, while profitability might not be their number one priority in their early stages of development, it must be a long-term goal of any business. With their ever-growing customer base, digital banks are increasingly under pressure to turn their business from loss- to profit-making. 

Credit where credit is due

Digital banks pride themselves on their fair (often meaning “free”) proposition and have so far stayed clear of offering loans (including credit cards & overdrafts), traditionally amongst the most lucrative products for traditional providers. Though somewhat reluctantly, newcomers are also realising that offering lending products is one of the most straightforward ways to offset losses made on their free, often high-cost services (e.g. overseas ATM withdrawals). Monzo, N26 and Starling have recently started offering credit products to their customers, with their loan offering expected to be extended to a wide range of services, from mortgages to overdrafts. Correspondingly, creating a lending portfolio can also pave the way for launching an interest-paying savings offering – a proposition seen as a basic banking product that is yet to feature in most digital banks’ portfolios. 

The business and operating models of digital-only banks

The premium customer

While most digital banks offer most of their products for free, some have extended their offering by paid-for premium services in order to create a revenue stream. As these premium features – including different types of insurance, unlimited free transfers/withdrawals, faster payment settlement or concierge services – are often offered in a subscription format, customers are typically prompted to pay for the full package rather than just the desired service(s), providing a significant revenue stream for the bank. Revolut, for instance, was amongst the first digital banks in Europe to break even earlier this year, a feat largely due to revenue from its premium subscription.

SMEs like digital too

Traditional banks typically service small and medium sized businesses under their retail rather than corporate banking arm. Having their product offering tested with consumers, and consequently gaining a reasonable customer base, digital banks have also identified SMEs as an ideal segment to extend their target audience to. The five FinTechs profiled have already gone, or plan to go, down this path by following up their consumer solution with a business account. While both propositions are typically built on similar features, some providers charge businesses a monthly subscription (e.g. Revolut), while others apply additional fees to specific services (e.g. TransferWise), banking on the expectation that businesses are more likely to be willing to pay for banking – something they are already used to doing. 

The marketplace model

While most digital banks offer a wide range of banking services, some of these tend to come from partnering with third-party providers. For instance, Starling Bank’s only proprietary product is its current account, which serves as a basis for the provision of ancillary services, ranging from loans to insurance, to investment opportunities. Instead of developing these services in-house, Starling enables a select group of partnering financial service providers access to its platform in exchange for a fee. In effect, Starling is using its customer base to create a market for its partners, charging a commission for each acquired customer. 

In such cases of digital banks applying this marketplace model, the majority of their income often comes from partners rather than customers. Naturally, only banks with a large enough customer base can be successful in this set-up, underlining the current intensity of competition amongst digital banks.

Banking as a Service

While customer-centricity is heralded amongst the main USPs of digital banks, some are looking beyond offering consumer-facing services to diversify their revenue streams. Starling, which is among the few digital banks built on its own proprietary platform, has recently leapt into the Banking as a Service (BaaS) industry, making its technology available to other start-ups looking to launch a digital bank. Naturally, this raises the question whether the two offerings could threaten each other’s success. Generally, as long as such partners operate in different markets, the two business lines should be able to thrive alongside each other. Further along the line, however, such partners could easily end up expanding their banking solution into the same market(s) as they aim for global success, and by doing so, becoming direct competitors. 

Different approach, same result?

It is fair to say that consumers in Europe looking to bank with a digital-only provider would have a difficult time finding relative advantages/disadvantages amongst the leading players in the industry. Still, despite the limited surface-level variety, exploring the business models of leading digital banks reveals different approaches to the challenge of making money. Alongside the more straightforward method of offering paid-for premium features/subscriptions, some are banking on the value that access to their customer base offers to third-parties, while others outsource their technology to neobanks wanting to focus on the Fin rather than the Tech. With competition amongst digital banks heating up, it will be interesting to see which business model(s) prove to be the winning formula in the long term.