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Blockchain gathers momentum but trust, compliance and partnership are key to the future

Future banking
By Simon Raymer, Chief Information Officer

Blockchain technology is now really gathering momentum across banking and financial services sectors. A recent report by the market intelligence and advisory services company, Greenwich Associates found that the financial services industry is spending about $1.7 billion per year on blockchain, as banks and other firms move beyond the proof-of-concept stage and start rolling out commercial distributed ledger technology (DLT) products.    

The study results show that blockchain budgets increased 67% in 2017, with one in ten of the banks and other companies now reporting blockchain budgets in excess of $10,000,000. The typical top-tier bank now has about 18 full-time employees working on the technology.

Moving forwards, we anticipate both the banks, and financial services organisations generally, to focus more on how they can use blockchain technology to reduce operational complexity, streamline efficiencies and to find competitive advantage.

Interestingly, consultancy firm EY revealed last month that it has built a transaction system that enables companies “to privately and securely create and sell product and service tokens on a public blockchain with private access to their transaction records.”

Using the Ethereum blockchain, EY proposes that businesses can now transact on the same network, effectively lowering the barrier to entry and avoiding the pressure of signing-up to proprietary private blockchain networks. The biggest challenge for enterprise blockchain adoption, it says, is getting partners onto those private networks. So, in theory at least, it makes sense to use an existing, public network.

The problem of course is trust. It might be unfair but blockchain is still tarnished by the instability of cryptocurrency.

Moreover, there is a school of thought that argues that blockchain does not level the playing field and should not be seen as the panacea to all ills. That’s very much a legitimate way of thinking, of course, but it is typically espoused by those who are largely in support of traditional banking infrastructures, the very infrastructures that are already being disrupted by digital technologies. Unsurprisingly then, some institutions are at least curious to see how the technology can reduce transaction costs and speed-up global payments, without compromising on security.

One thing is certain. Enterprises are demanding flexibility, better payment options and more mobile services and this is impacting banks and traditional attitudes to how businesses manage transactions. Blockchain is the only real solution on the table at the moment, but it has its issues. While trust is key, so is compliance. Before blockchain can become the backbone of any transaction business, it must comply with regulation, although the regulators are notoriously slow in keeping up. Essentially, this is about ensuring all the controls are in place and that it can be tested and monitored.

There is also a clear need to educate the market, not only in what blockchain is, but, critically also, the benefits it can deliver. Banks should be having conversations with their clients around blockchain, but they need to steer away from talking about it as a product per se and instead concentrate on what they will be able to deliver in the future in terms of efficiency and customer satisfaction.  Cutting through the complexity and the hype that surrounds blockchain is not always easy, of course. However, that’s exactly where banks can benefit from a more collaborative approach, and especially from partnering with fintech providers with the specialist technology expertise and focus on innovation to turn the blockchain vision into a practical roadmap for the future.