Is Blockchain Ready?

Friday, September 23, 2016

Posted by Katrin Boettger to Payments and Industry Trends, Immediate Payments, Transaction Banking

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SIBOS is just around the corner and blockchain will undoubtedly be one of the buzzwords at this year’s event (as is the case at pretty much every payments or fintech conference these days). The big question on everyone’s mind is whether blockchain really has the potential to change the global systems that process trillions of dollars in payments every day or whether it’s hype. I recently sat down with Paul Thomalla, ACI’s senior vice president of global corporate relations, to delve deeper into the topic, a topic on which he has just published a white paper.

Everyone seems to be talking about blockchain these days, but for many the concept still seems to be a mystery?
That’s right and one of our aims was to demystify the idea of a blockchain. Our white paper clearly defines what blockchain is and what it isn’t or can’t be. The research looks at some of the practical examples of how blockchain can be used by identifying what I call the ‘sweet spot’, i.e. use cases where an ideal combination of attributes of the technology come into place. The findings are based on our own research and conversations with 10 financial institutions all involved in their own blockchain projects.

What do you personally think is the potential of the blockchain technology?
There is a lot of noise around blockchain disrupting payments, but I believe the technology is NOT ready for application in payments in the near future, by which I mean in the next 3 to 5 years. It’s far away from getting into the regulatory environment and therefore will not be ready for public use in the near future. However, there was a general recognition among those with whom we spoke blockchain will have a transformative impact on the financial services industry. At the moment, it is a raw technology, and few see immediate gains, but they are nonetheless investing in assessing its value.

Which brings me to the ‘sweet spot’ – where did you find it?   
I believe that there are some excellent use cases. Blockchain enables data to be shared, authenticated, audited and to be stored forever. The technology has the potential to transform areas such as supply chain and trade finance and especially securities post-trade. At the moment, the total cost to the finance industry of clearing, settling and managing the post-trade environment is estimated at between US$65 billion and $80 billion per year. The back office elements of much current post-trade activity are based on archaic and complex processes, many still lacking automation. The nature of this post-trade processing really plays to the blockchain’s ‘sweet spot,’ and use of the technology in that space will bring massive savings for financial institutions.

So what’s your advice to clients?
Everyone should be taking this technology seriously as it has the potential to disintermediate many of the processes we know in today’s financial services industry. But it won’t happen overnight or as quickly as some predict. What we need to change first is the culture in which we embed it; today we work in silos, the sheer nature of the blockchain technology is that it doesn’t work in silos.