February 23, 2021

Digital engagement is increasing across demographies and interactions occur through numerous platforms. We are well into the next-generation internet, a balkanized ‘splinternet’, that federated blockchains can unite in an interoperable platform ecosystem. Distributed ledger technology (DLT) can connect the dots across splintered digital interactions and transactions to enable insight-driven hyper-personalization. In addition, transparency, traceability, and tokenization enabled by blockchain can facilitate breakthrough product and service innovation while its immutable, distributed recordkeeping feature can provide significant operating benefits.  Blockchain capabilities can empower organizations to make the evolutionary leap to the next performance curve and better satisfy market demands. Needless to say, no matter the size of its technology budget or stage of digital maturity, a business lags its peers without a blockchain strategy.  

Optimizing investments, navigating change

Different sectors are leveraging blockchain to reap the benefits of transparency and traceability. For instance, manufacturers have deployed blockchain to make supply chains more resilient and prevent catastrophes like the outbreak of illness from tainted produce.  The accelerating implementation of blockchain in supply chain management is an undeniable bellwether for its use in other industries including the banking, financial services, and insurance (BFSI) sector. By orchestrating blockchain adoption along with legal and regulatory foresight, BFSI incumbents stand to gain the early mover advantage. The alternative is to be left behind as bystanders or devastated competitors steeped in antiquated ways of doing business.

Adopt and adapt

A leading asset management firm recently introduced a digital asset custody service rooted in blockchain technology.1 The firm can now better compete with emerging fintechs and tech-savvy investment managers by using its accumulated blockchain knowledge and ability to navigate the regulatory environment to capture the swell of new and old money portfolio allocation to digital assets.  While the future is unknown, the firm seems well-positioned to weather the possible disintermediation of intermediaries as a self-clearing broker-dealer with strategic investments in market infrastructure.  

Creating value

The pandemic has accelerated remote and self-service interactions. As data verification and validation are key to processing transactions, using blockchain throughout the value chain can help reduce the operating cost of maintaining multiparty transaction systems. Additionally, new revenue streams and market growth are being generated by innovators via asset tokenization. For example, the issuance of investable digital assets on a blockchain enables trade in a security or commodity.2 With new regulation allowing national and federal banks to run crypto-nodes and transact in stablecoins3, US banks can benefit from the improved accuracy and cost benefits of blockchain solutions while reaching new segments.4  Another way in which BFSI firms are benefiting from blockchain is by investing in the rising, albeit volatile, crypto-currency market in pursuit of shareholder value.5 Insurance firms and brokers are also harnessing DLT, especially on public blockchains. A leading broker and risk adviser has launched a blockchain-powered platform to provide digital self-service enabling on-demand issue of certificates of insurance for its clients.6   

Clearly, certain pillars of the BFSI ecosystem have reaped the benefits of adopting blockchain in their vertical. At the same time, some others have noted the steep costs of hastily embracing the technology, which could even include regressing into the past instead of jumping into the future7, while some others have taken action to shape the long-term future of financial enterprises.3, 8

Looking ahead

The time is ripe for private blockchain implementations.  Doing so helps BFSI firms strategize to realize the full potential of DLT by integrating business processes with the public blockchain ecosystem. Public blockchain implementations are steadily growing as the benefits become more evident. Industry regulators are already shaping emerging markets, for instance, by encouraging the innovative use of blockchain for digital asset securities.9 In the meantime, private blockchain solutions can address current pain points and opportunities across different BFSI functions – more inspiration can be found in our Quartz™ magazine. 2

1 Fidelity, About Fidelity Digital Assets, Accessed February 2021, https://www.fidelitydigitalassets.com/about-us#oursolutions

2 TCS Quartz™, The Smart Ledgers, 2020, Accessed February 2021, https://www.tcs.com/content/dam/tcs-bancs/pdf/bancsprotected/Quartz-Magazine-Digital-Edition.pdf

3 Office of the Comptroller of the Currency, Federally Chartered Banks and Thrifts May Participate in Independent Node Verification Networks and Use Stablecoins for Payment Activities, January 2021, Accessed February 2021, https://www.occ.gov/news-issuances/news-releases/2021/nr-occ-2021-2.html

4 The Wall Street Journal, Bitcoin to Come to America’s Oldest Bank, BNY Mellon, February 2021, Accessed February 2021, https://www.wsj.com/articles/bitcoin-to-come-to-america-s-oldest-bank-bny-mellon-11613044810

5 Bloomberg, 169-Year-Old MassMutual Invests $100 Million in Bitcoin, December 2020, Accessed February 2021, https://www.bloomberg.com/news/articles/2020-12-10/169-year-old-insurer-massmutual-invests-100-million-in-bitcoin

6 Marsh, Marsh to Begin Rollout of Proof of Insurance Blockchain Platform, April 2019, Accessed February 2021, https://www.marsh.com/us/media/proof-of-insurance-blockchain-platform.html

7 Greenwich Associates, Steampunk Settlement, Futuristic DLT Technology Could Deliver Anachronistic Result, June 2019, Accessed February 2021, https://www.greenwich.com/press-release/steampunk-settlement

8 Ledger Insights, Monetary Authority of Singapore completes multi-currency blockchain payments test using JP Morgan tech, Accessed February 2021, https://www.ledgerinsights.com/monetary-authority-of-singapore-multi-currency-blockchain-payments-experiment-jp-morgan-tech/

9 Securities and Exchange Commission, Custody of Digital Asset Securities by Special Purpose Broker-Dealers, December 2020, Accessed February 2021, https://www.sec.gov/rules/policy/2020/34-90788.pdf

Carl Yang is a consulting partner with TCS’ Banking, Financial Services, and Insurance (BFSI) business unit. Based in Cambridge, Massachusetts, Carl led transformation strategy engagements at global management consultancies and healthcare-biotech enterprises prior to joining TCS. In his current role, his team collaborates with clients to create value by anticipating the priorities and unmet needs of their current and future customers using methods that include strategic foresight, systems thinking, and service innovation. Over decades of delivering value to financial enterprises, Carl led emerging technology research and was the head of the Digital Consumer Practice at the Fidelity Center for Applied Technology and Fidelity Labs, where he spearheaded bitcoin-blockchain research in 2009. He hosted industry salons with asset management and capital markets infrastructure executives in 2016 and co-produced a global blockchain and algorithmic law conference for MIT, Queen Mary University and the Morgan Kauffman Foundation.