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Blockchain: It’s coming but let’s prepare the ground

Last week I attended a European fintech conference in Amsterdam. I’m no stranger to these events but this one was different, in a number of good and diverse ways.

This one had topics ranging from mobile-only challenger banking, smarter payment approaches to insurance and health care technology solutions and, of course blockchain. Delegates were from almost every European country and state, which gave great insight into the pan-European fintech community rather than the many London centric fintech events that abound.

Blockchain – the big picture

Naturally, the global, wholesale, capital market fintech sector was covered at the conference and, of course blockchain was the topic de jour. Refreshingly however, ideas and conversations about its applicability did not just focus on this sector.

 It feels, at times, that the domination of blockchain, and how it will affect the global markets, is all we read. For example, earlier in the week it appeared to be the top agenda billing at the ISDA AGM in Tokyo.

 Opinions range from it being either the biggest hype of all time (although less so more recently) to the nirvana of the financial world. The tag that blockchain will become ‘the email of money’ certainly makes everyone pay attention.

Listening to people talk about its use in industries outside my area of knowledge gave the whole topic a new dimension-thanks to Daniel Gasteiger of nexussquared for the clearest explanation of blockchain to date. My eyes were opened to the potential applicability of distributed ledgers across a variety of industries: health care, insurance, reinsurance, ticketing, telecommunications, legal, accounting and retail, to name just a few. (Just think of how efficient house conveyancing would be using blockchain). Stepping out of the private sector for a moment, imagine how vast swathes of inefficiencies in the public sector could be transformed…

Clearly the issues over data privacy need to be addressed but the wider world seems to be moving towards the blockchain era.

Blockchain-barriers to adoption

It’s clear that blockchain can revolutionise the capital markets but overlaying it onto the current post-trade environment requires a lot more work.

There is still so much reliance on legacy systems and old mind-sets that even the Federal Reserve governor, Lael Braniard, commented this week that ‘Legacy technology and interoperability could be the stumbling blocks to widespread uptake of distributed ledgers in the financial markets, creating unintended consequences for the efficient functioning of markets.’ 

There is a lot to be done before blockchain can reach its potential as we’re still seeing legacy and ‘we’ve always done it this way’ decisions being made over more efficient, cost-effective and agile solutions.

Far too many large banks still rely on legacy technologies and workflows that include extensive manual intervention, a high error count and a vast and growing cost base.

These processes and accompanying costs may have been acceptable when profits were keeping shareholders happy, bonuses were big and regulation was limited. But to continue on this path in the current economic environment is counterproductive and also propagates a huge set of barriers to something as revolutionary as blockchain.

On a daily basis, we see banks reacting to fintech solutions as if they are going out of fashion – be it through direct investment and/or acquisition. However, there seems to be more of a reluctance to adopt and implement new, agile services to transform their own post-trade practices and slash costs.

There’s a fundamental disconnect here that financial institutions need to remedy in order to stay competitive. Time is critical and many of these new cloud and hybrid-cloud services can give ROI in a few months, breaking the model of multi-million dollar and multi-year projects.

Surely we need to see those banks who support blockchain start to remove their own internal barriers to entry sooner rather than later?




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