Blockchain based technologies have the potential to disrupt the financial services industry, as reported by a host of industry players. Incumbent financial institutions have been exploring the potential of the technology as a means of reducing complexity, cost and improving efficiency. A new study finds that around 50% of surveyed companies have already begun to make strategic investment choices, with particular focus on cross boarder payments, digital identities and clearing & settlement.
Blockchain rooted technologies has been heralded as a disruptive force in the financial services industry, capable of undermining traditional businesses models and technologies currently employed in a range of key financial services transactions. Lowering costs, improving transparency and transaction speed are all cited as possible advantages. And, while the technology has considerable hurdles to overcome, a range of players, from professional services firms and incumbent financial services institutions, to the startup scene, are developing propositions.
In a new study, by Finacle (an arm of Infosys), the authors look into the key relationship between financial services institution and blockchain technology. The study involved a survey of more than 100 business and technology leaders from 75 small to large financial services institutions across the globe.
The study sizes up the current interest of financial services firms in FinTech technologies, dividing them into three categories based on their current relationship with, and investment in, the technology. Of the respondents, around 50% are ‘late adopters’, which means that they remain in ‘wait-and-see’ mode, preferring to bet on certainties when the technology begins to sufficiently mature. A further 35% are in the ‘early followers’ category, those that have identified potential use cases for blockchain technology and have strategies that may see up to $1 million invested into solutions. The final, and smallest category, are the ‘innovators’ – this category accounts for around 15% of the group, with full scale investment in potential solutions, and more than $10 million in investments already made.
The research also explored the key use cases that financial institutions see for blockchain technologies. Respondent financial institution priorities, according to the survey, are in the areas of 'cost and complexity in business processes reduction' and 'to increase operational efficiency'.
‘Cross boarder payments’ ranks highest for potential deployment, scoring 4.1 on a scale of 5, followed by ‘digital identity management’ and ‘clearing & settlement’, both on 4.0. The areas of least priority include ‘repurchase agreements’ at 3.9, ‘otc derivatives’ at 3.4 and ‘open account’ at 3.5.
The research further looks at who are the main drivers of blockchain investments in banks and financial institutions. The list is topped by Chief Technical Officers (28%), followed by Chief Innovation Officers (23%). The third largest group, Line of Business Heads, comes in at 21%, while Chief Information Officers are fourth. Chief Digital Officer and ‘others’ follow suit.
The study in addition finds that many (50%) of the financial services institutions surveyed are opting to work either working with a FinTech startup or technology company, while 30% are leveraging a consortium model.
Asked about the the largest implementation challenges in the blockchain technology space, the respondents point at ‘readiness of ecosystem and need for cooperation within banks’ as the biggest challenge, with a score of 4.01, followed by ‘integrating blockchain applications with existing enterprise applications’, at 3.87. Further obstacles cited are that institutions have a ‘lack of governance models among stakeholders’, which comes third, and a ‘lack of maturity of blockchain technology’, which scores 3.1.
A ‘lack of clarity on regulatory requirements’ takes fifth spot with a score of 2.8, while the least cited challenge is ‘data privacy / security issues’, with a score of 2.67.
The biggest opportunity highlighted by respondents is the ‘potential for creating new investible assets’, which scores a 4.13 out of 5 on the priority score. 'Automation of process across enterprise’ takes second spot, with a score of 3.41. ‘Cost reductions’, which is cited as one of the main drivers for the technology, comes in third equal with ‘reduce settlement and transaction time’, both with an impact score of 2.9. The lowest impact opportunity mentioned by respondents is ‘improved transparency among counterparties’.
Sanat Rao, Chief Business Officer at Finacle, says, "This research reaffirms our belief that the blockchain technology has potential to help banks reimagine banking processes. The technology can help banks automate inter-organisation processes, significantly improve transparency and reset existing operational benchmarks. Several progressive organisations have already executed pilots to validate these propositions. We believe, in the coming quarters, the industry will experience greater momentum towards rolling out lab-pilots to real-life use cases."