Let’s get this out of the way. Blockchain is great.

I’m in no doubt, that every part of our financial services industry, one day, will be simpler and more efficient because of Blockchain.

It’s also encouraging to see banks and institutions putting plenty of wood behind the Blockchain arrow. Finally, we are waking up to the idea that Rationalisation and Simplification weren’t radical enough given the seismic shifts in the industry; winning requires a more radical approach and Blockchain certainly facilitates that.

However, rarely in history has the obvious technological change been the tipping point for a transformational change. To borrow from Silicon Valley, it's tempting to think the smartphone revolution started in 2007 when the iPhone showed off its wonderful hardware design and capacitive, multi-touch display.

Whilst the first iPhone was a thing of beauty, it was three less obvious shifts that pushed us into the age of the smartphone; ubiquitous mobile data access, advances in battery technology and the app ecosystem. Without those fundamental enabling changes, the smartphone would be interesting, but hardly a revolution.

So, if Blockchain has captured the imagination of our industry, what are the three less obvious changes that will fuel the Blockchain revolution? What are the plays that will ensure Blockchain delivers all that we hope for in Financial Services?

Data Architecture - Ten years ago, having your own idiosyncratic view of your bank's data was fine. Product silos could be profitable enough without having to standardise. An army of people could be employed to massage the internal view with the external view and manage a multitude of exceptions. And the regulator had little regard for data. 

Fast-forward. The regulator has moved from regulating "on the business" to "in the business" and data accuracy and provenance are now key. However, if Blockchain and distributed ledger technology is really going to deliver benefits, then banks must move away from the legacy of storing transactions in their own idiosyncractic format. When the ledger is distrubuted, information will need to be stored in a market standard format. Transformations from bank-to-market standard won't always be possible and will be inefficient, introducing error potential that could undermine the security and provenance of Blockchain.

ACTION : Double-down on market standard reference data activities and the provenance of in-house transaction data

Workflow and Orchestration - As we leverage distributed ledger technology (and Fintech plays), functions and lifecycle events that were prime record and processed in-house will be given up to the market. Historically, this orchestration was simple as it typically involved messaging between in-house systems using bank-standard message formats. Workflow for smaller transactions and events, were typically buried in the code or configuration data of large in-house or vendor applications.

As Blockchain distributed ledgers form and the requirement for events impacting the ledger move outside of the bank, the ability to orchestrate workflow becomes key in ensuring the bank can realise the efficiencies afforded. 

ACTION : Invest in isolating full channel-to-ledger workflow from in-house and vendor applications in order to orchestrate around distributed ledgers and Fintech plays.

Capital and Cost - The asset value of bank capabilities has changed in the last 10 years. For example, in capital markets, trade repositories and clearing houses have commoditised some of the operational capabilities. Forward integrating with your customer's business becomes even more important and the asset value of those capabalities is on the rise.

Still, the capability balance sheet of organisations lags what the market is demanding. Much of this latency is emotional; unwillingness to accelerate and embrace the change.

Winners with Blockchain will be those organisations who can change their cost and capital structure rapidly in line with the advancement these innovations afford. When the capability and prime record moves to the distributed ledger, any vestigal capability the firm has must come under a rigourous cost and capital challenge.

ACTION : Plan the future states of Fintech and Blockchain. Understand the scenarios that could play out and put in the governance frameworks to adapt the cost and capital structure accordingly.