Industry-wide blockchain breakthroughs at least six years away
12 October 2016 | 18346 views | 1
While three quarters of banks are actively experimenting with blockchain technology, regulatory uncertainty and a lack of inhouse expertise are proving major roadblocks to near-term adoption, according to research from SIX Securities Services.
Despite the excitement about the potential for distributed ledgers and smart contracts to fundamentally alter the financial landscape, respondents to the SIX Securities poll are not anticipating any immediate breakthroughs, providing an average estimate of six years before blockchain is widely implemented.
The study reveals different approaches to innovation. Thirty-two percent have developed a proof of concept, while 1 in 5 (18%) are piloting a specific product or service. Fourteen percent of total respondents say they have set up a blockchain focused innovation lab, while 12% have partnered with a blockchain company.
SIX is itself a prime exemplar of this trend, having contracted with Digital Asset Holdings to develop a proof of concept to test the commercial viability of distributed ledger technology across the Swiss financial market, with an initial focus on securities lifecycle processing. The firm could also be seen at the Swift financial conference Sibos showcasing a protoytpe application for corporate actions.
The SIX poll found one-third of financial institutions believe that blockchain will have the biggest impact on settlement (38%), followed by clearing (34%). However, just 20% agree that the technology will make the clearing process completely redundant.
Thomas Zeeb, CEO of SIX Securities Services comments: “A lot of the conversations we are seeing around blockchain are on the technical level, looking at what is feasible with blockchain rather than what is desirable from a business standpoint. Blockchain has the potential to make a number of business models and intermediaries obsolete, which isn’t necessarily a bad thing. It is however important to question the changes that this would bring to the ecosystem."
Regulation emerges as the primary perceived barrier, particularly for global systemically important banks - 72% highlight this as one of the top three factors holding blockchain back from being adopted in clearing and settlement today. Conservatism and inbred caution in the C-suite must also be overcome.
Setting up a blockchain lab is one thing, garnering top-level support for a commercial roll-out is another, says Zerb.
"Until the industry has clear indications on sustainable use cases - including costs and benefits - it will be difficult to convince top managers to bring their trusted systems into these new domains,” he says.