Financial services still wary of blockchain risks despite hype

Blockchain investment is now a high priority among more than nine-in-ten decision-makers in the financial industry. However, security and privacy concerns still linger for the majority of market leaders.

After rising to prominence as the technology underpinning various crypto currencies, blockchain initially made its presence felt in the financial sector. Early hype claimed blockchain boasted a number of clear gains, however over the following years its impact remains muted at best.

The benefits – an apparent invulnerability to hacking – were of limited interest to many companies, as internal fraud often takes a bigger toll on finances than external attacks. Meanwhile, the fact much of the technology was still under development meant regulatory uncertainty and trust issues remained barriers to wider business adoption.

According to new research from FTI Consulting, things are changing in the financial industry, at least. While the sector has always been a stronghold when it comes to blockchain interest, it is now the case that 95% of leaders in the market are making it a top priority.

Rather than adoption of blockchain and crypto by competitors, one of the key driving factors behind this seems to be the uptake of the technology by state actors. Of the 150 decision makers at financial institutions FTI polled, 56% anticipated there would soon be increased traction on Central Bank Digital Currencies.

With the digital Euro among state projects suggesting central banks may be set to enable the general public to make digital payments, this factor is seen as having a potentially greater impact on financial services than any of the other traditional hype factors surrounding crypto or blockchain technology. These include payments and transactions – still rated highly by 54% of respondents – and traceability, at a far lower 33%.

Steven S. McNew, Head of FTI’s Blockchain and Cryptocurrency practice, commented, “We’ve been engaged to make sense of technical underpinnings, clarify the meaning of new terminology, advise on infrastructure and solve completely novel problems. It’s exciting to see that financial institutions are prioritising this innovation and embracing disruption, but it’s also important to remember that as with any emerging technology, progress will require evolving education and risk preparedness.”

Even so, many financial services leaders still have the same old concerns which have held back investment in crypto or blockchain over the last year. Chief among those are security and privacy concerns. The whole segment has failed to shed its designation by the UK Treasury as the ‘Wild West,’ as while external hacking proves more difficult, traditional confidence trickery has thrived, and with little to no systems of enforcement to reimburse the victims of scams, or bring those executing them to justice.

With billions in cryptocurrency still stolen by hackers each year, each hack adds to market volatility, undermining consumer and institutional confidence, and inherently limiting the potential of the supposedly powerful technology. As such, while there is on the face of it a huge appetite for the blockchain in the financial services sector, only 13% of leaders told FTI their investment in blockchain or crypto had not been slowed by anything over the last 12 months.