The blockchain discussion has definitely gone beyond use cases and proofs of concept (PoCs). Several banks have started exploring this technology for payments processing, trade finance, and securities settlement. However, the financial services industry is still at a nascent stage of blockchain implementation. According to a recent Forbes article, there still exists a chasm in the adoption of blockchain technology. Compared to other disruptive technologies like mobility and Big Data, this one has witnessed a rather slow uptake.
In our view, the following three aspects are responsible:
The enterprise blockchain Its never been done before
Till today, there isnt a commercially available, proven technology platform that can handle enterprise-class volumes, security, and reliability, while ensuring regulatory compliance. While banks have successfully used available open source technologies during the sandbox stage, the story becomes visibly complex as you move toward go-lives. Several additional parameters get added to the equation, and you end up looking at an entirely new scenario.
Market ecosystem There is no I in team
Blockchain technology is most effective when it is applied to use cases involving several industry players (for example, global payments, trade finance, and securities settlement). Successful deployment therefore requires that participating financial entities agree on the messaging and data standards related to this technology. This could be quite a challenge, as one can see from the long time taken to implement new standards, such as ISO20022, in the industry. Meanwhile, banks are trying to explore this technology through competitive cooperation with initiatives like R3CEV the industry-wide consortium of over 40 investment banks where they form alliances, and investing in niche firms and startups. Despite these developments, a clear idea on how an industry-wide solution will evolve, is yet to emerge. Adding to the complexity is the technologys capability to disintermediate some industry players. This could cause friction among the various entities, delaying industry-wide implementation.
Business Case Show me the money
This is the least talked about aspect at present. The superiority of the distributed ledger feature in processing complex hierarchical transactions has been proven on paper only. The cost of establishing the technology, migrating data to the new platform, accounting for changes to core systems, training users, changing operational processes, and other such factors has not been accurately estimated yet. Once there is more clarity on the technology and ecosystem related issues, we will gain more insights on how to plan the next steps.
The burning question thus remains, will blockchain technology help organizations prepare for the future of finance? Is the new horizon just around the corner, or is the blockchain dream far from being realized?