By Antony Ruddenklau, Head of Digital and Innovation in Financial Services, KPMG
The over-sale of blockchain as the solution to every problem in financial services is one of the biggest blockers to its success.
This is not to say that blockchain and its benefits are not a reality. There’s just no doubt that, with the technology very much still in the pilot phase of its overall development, there’s a real disparity between blockchain’s projected benefits and its real use cases.
Natural curiosity shared by businesses, consumers and regulators shows that, regardless of its primitivity, blockchain has not been wholly disregarded as ‘tomorrow’s problem’. Simply put though; the business case for blockchain will only mature when the technology itself does.
There are no scaled production systems within financial services that can claim to be reaping significant financial benefits from blockchain currently, despite it being a constant topic of discussion. There are certainly examples of companies trialling the technology – banks using Capital Markets Utility coins to improve market participation and reduce the expensive movement of cash or Trade Finance consortia to deliver efficient supply chain financing, for example. But this isn’t bringing a ‘eureka’ moment – yet.
the business case for blockchain will only mature when the technology itself does.
For me, the biggest ‘blockers’ to blockchain’s success are fourfold. Whilst blockchain’s implementation has run into a number of operational setbacks, the biggest challenge involves the cost of integrating blockchain technology into legacy systems. For many high profile pilots, their discontinuation has also been a result of the unsustainable cost of running two parallel platforms.
Making blockchain a reality will often require new and old systems to be run in parallel, and legacy systems to be switched off over the medium-term. Banks don’t just require vision to digitally twin blockchain with their legacy platforms but resource (cost and people) and a healthy risk appetite.
Another barrier for blockchain involves its customer liquidity within its marketplaces. Where there are platforms up and running in the market, they are struggling to gain widespread participation. Until there are one or two scaled and commercially viable offerings, it will be difficult for the market to be attracted to new commercial ways of working.
the biggest challenge involves the cost of integrating blockchain technology into legacy systems.
Blockchain’s problem here is also exacerbated by the availability of other technologies that are more easily executed, cloud services for example, which can deliver benefits faster, without costly integration and without the need for complex multi-party arrangements. The key here is to think about the transformation to digital enabled through a basket of emerging technologies and only deploying blockchain where its unique properties warrant the investment.
Senior management awareness is another issue for blockchain. We’re seeing a lack of emerging technology awareness at the top table, particularly with blockchain, which leads to an unjustified risk aversion or unstructured approach to exploring new and unproven technology. Given the transformational force of technology to the financial services industry – and the real economy it serves – not having a strong knowledge of emerging technology as a business leader is plainly not acceptable.
This is worsened by blockchain’s final ‘blocker’; known unknowns. Questions of security, financial crime, data ethics, GDPR compliance, processing power and disaster recovery are all paper cuts to the perception of blockchain. With governance regimes in financial services scrutinised to the highest level of accountability by regulators, much of these issues need to be clearly understood and mitigated before platforms supported by blockchain are received with universal confidence.
It is clear that blockchain’s over-sale as a blanket solution has created a zone of disillusionment. There’s a perception gap between blockchain’s benefits, which will be widely realised once the technology matures and achieves an adoption tipping point, and the solutions it’s providing currently. Until blockchain regains its position as one of a handful of technologies that can solve the digital transformation of real use cases, the industry will continue to view it as interesting but not a compelling panacea for all of its ills.