BLOCKCHAIN REACTION: WILL IT CHANGE EVERYTHING?

magic-cube-cube-puzzle-play-54101

Blockchain – an often discussed but rarely understood technology – is a rising topic on the C-suite agenda, offering myriad opportunities to reshape and advance digital infrastructure.

While the technology’s earlier uses lie with trading the cryptocurrency Bitcoin, these too have evolved, and many now argue it is the panacea financial markets have been waiting for.

You should be taking this technology as seriously as you should have been taking the development of the Internet in the early 1990s,” says Blythe Masters, CEO of Digital Asset Holdings. “It’s analogous to e-mail for money.”

How does Blockchain work?

Blockchain works as a decentralised ledger, recording transactions on multiple computers, making it very secure and resistant to hacking or manipulation.

According to Gartner, the technology is gaining traction for two reasons. One is because it promises to add trust and transparency to complex or sometimes misunderstood markets. The other, because it reduces friction points for businesses by providing open access to the information in the chain.

“The technology represents a potentially important breakthrough at a time when leading investment banks are looking at myriad ways to rebuild their returns on equity.” – says Chris Blain, partner at McLagan.

How can Blockchain help?

According to a recent estimate by Accenture and McLagan, blockchain technology can help banks cut costs by up to $12 billion annually in back-office processes such as settlement, regulatory and cross-border payment costs. It removes the need for intermediaries and takes only a fraction of the commission charged by banks and unions.

“Firms are dealing with greater requirements for reporting, transparency, and dissemination of data. Costs have gone up and revenues have gone down. This technology really gets to the core of all those issues” – says Ms Masters.

Indeed, while the technology is still in testing stages, the World Economic Forum too is forecasting its potential “to disintermediate almost every process in financial services” changing the way financial players trade loans, bonds and other assets.

In wealth management, HNW clients could be made to feel much more secure if their personal information is stored and used via the blockchain method, especially as they have so much to protect and are often the target of hacks or scams.

From smart contracts and identity management, to gold, diamonds and property titles – the technology allows institutions to transfer assets beyond just the digital currency and could therefore be a resource applicable to and leveraged by many industries (see Image 1).

The UK government could even use it to track money involved in student loans and international aid. Its use of multi-party involvement makes it an unbiased and secure way of making and recording transactions.

Image 1: The many uses of blockchain

Bitcoin
Source: http://banknxt.com/55981/blockchain-its-complicated/

What are the challenges to Blockchain adoption

However, while the vision of a superefficient world is enticing, financial services is an industry that is heavily regulated and consequently notoriously slow to change.

Getting regulators and institutions on board to uproot decades of legacy IT systems and practices will be a colossal, complex and expensive task.

Sceptics doubt to what extent blockchain will be the panacea it promises to be, and whether one technology can really recreate markets to become more transparent and efficient.

So while blockchain certainly has the potential to improve both the operations and the customer experience sides of business – changing its underlying ecosystem will be no small feat.

Persuading financial players to place their bets on a technology not yet fully understood or trusted by many market participants will therefore probably be the hardest part.

Thought for the week:

“Never before in history has innovation offered promise of so much to so many in so short a time.” – Bill Gates

 News from the world of wealth:

More consolidation in Asian private banking as OCBC to buy NAB’s Singapore and Hong Kong business – CNBC

How Johnny Depp blew through his millions – Wealthmanagement

‘Off to a good start’ Rathbones increases FUM to £35.8 billion – Citywire

Barclays to Pay $97 Million on Claims It Overcharged Clients – Wealthmanagement

Standard Life, Aberdeen to cut 10 percent of jobs in merger – Reuters

Ruohan Wang Scorpio Partnership

Author: Ruohan Wang, Senior Analyst at Scorpio Partnership

Education: Ruohan holds a Bachelor’s degree in Joint Honours Economics and Finance from McGill University.

Role with us: Ruohan joined Scorpio on the graduate scheme. She works on a variety of projects and has recently conducted quantitative research analysis for thought leadership initiatives and client experience surveys.

And at the weekends: Ruohan enjoys playing the piano and looking out for anything Canadian-related in London.

Leave a Comment