Blockchain is no longer an emerging technology

For the early adopters of blockchain technology the rewards will be untold: new revenue streams will be created, the chance to optimise target operating models, and the prospect of bringing typically mundane back office processes to life, such as supply chains. Convergence with other technologies, such as IoT (internet of things) devices, will create new insights on consumer expectations and trends in real-time. Ultimately, blockchain will lead to new, far more relevant and meaningful digital experiences to help businesses protect and potentially increase market share.

For those who continue to ignore the value of this technology, the stark reality is that they are at risk of becoming as irrelevant as those businesses that ignored the opportunities presented during the advent of the internet. Indeed, companies and their leaders have a duty to continually innovate before it is too late. This could not be truer for financial service providers whose businesses are currently under siege from a number of external threats. An industry currently weighed down by the cost and inefficiencies of legacy IT, data and culture silos and heavy regulation has made it incredibly difficult for financial service providers to be truly customer obsessed with experiences often falling way below expectations.

Future trade processing should not have to run through a collection of front, middle and back office processing teams

Tough to keep up with customer expectation

However, it is hard to remain customer obsessed when budget holders within these organisations are sometimes forced to allocate up to 90 percent of their annual spend towards meeting the expectations of the regulators. As a result, banks have found it increasingly difficult to innovate as much as they might like to do so. In turn this has made it difficult for them to keep services up to date with the shifting nature of customer expectations derived from their everyday interactions with customer obsessed technology and providers such as Apple, Amazon, Facebook, and Google.

Whilst blockchain will become a key differentiator for every financial service provider, it’s vitally important they first understand the business benefits of the technology and, perhaps more importantly, the reasoning for blockchain’s introduction back in 2010 via the Bitcoin network. The latter is something I believe to be the most important; which is why I have made ’best network wins’ one of Smarter Contracts company precepts.

In a world of blockchains it will no longer be the best single company that wins. The financial service providers who understand this point  stand a better chance of being the successful blockchain innovators of our future. Having said this, it will take time for them to overcome what is undoubtedly a fundamental shift of mindset. Indeed, we have already seen evidence of this within the industry.

Whilst JP Morgan has done a fantastic job in identifying the need for reducing the cost and friction of cross-border payments using JPM coin, one cannot help but think how much better it could be if consideration was given to the impact that the solution could have if they worked as a broader network of financial service industry participants, as opposed to a single entity. Not only would they have solved a relevant use case, but they might have prevented what may become a future friction point of a cross-border payment, customer journey, given that there currently is a lack of interoperability between blockchains. Companies that collaborate most effectively to reduce these future points of friction will provide the most effective digital experiences of the future.

‘Best network wins’ also refers to the importance of the financial service providers’ own internal processes and procedures as much as their external facing services. Banks need to recognise that blockchain transcends borders; therefore, if blockchain is being considered in closed, departmental silos, an opportunity is being missed. Within investment banking, future trade processing should not have to run through a collection of front, middle and back office processing teams. Unlike traditional database-based trade platforms, where transactions are confirmed at the end of the day, decentralised platforms will confirm that a transaction is valid before it is added to the ledger. Trade processing will be instant, financial service providers will be much leaner, and customer experiences far superior.

By tokenising financial products, banks will speed up automation and reduce friction points within customer journeys en-masse

Approaching a perfect storm for blockchain adoption

Such improvements will ensure that almost all financial products will become ‘tokenised’. Smarter Contracts currently builds security tokens for an FCA licensed platform in the UK so we’re seeing first-hand just how disruptive these products will become. By tokenising financial products, banks will speed up automation and reduce friction points within customer journeys en-masse; simultaneously opening the market to new pools of liquidity as new participants enter the fray. Blockchain is offering financial service providers an incredible opportunity and here in the UK we’re extremely lucky to be supported by a regulator that recognises the importance of innovation.

It is difficult to write a single article that can outline the abundance of opportunities that we see within this industry; however, we should consider the work of Moore (1991) and his revised version of Rogers technology adoption curve. I would suggest we are currently ‘crossing the chasm’ between the early adopters of blockchain technology (visionaries and enthusiasts) and the early majority (pragmatists). Simultaneously, with the introduction of GDPR and consumer recognition that their data should be making them money, rather than those who process data on their behalf, I would suggest we are approaching the perfect storm for blockchain adoption.

Once we do cross the chasm there will be an explosion of companies trying to integrate blockchain solutions for their customers. The shortage of blockchain experts who understand the business drivers as much as the technology combined with the economics of supply and demand, will undoubtedly push the price of securing those services upwards over the coming years ahead. This in itself should become a key driver of change, particularly for Tier 2 and Tier 3 financial institutions wishing to protect their future market share. Ultimately, it would be more impactful if these financial service providers consider the benefits of blockchain collectively, given ‘best network wins’. 





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