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Innovations in the Blockchain pipeline for 2018

It's hard to believe that, just a few years ago, cryptocurrency was viewed as a fad with Bitcoin being the new kid on the block. Only a handful of people could have predicted the degree of disruption that was in store: By the end of 2017, there were over 1400 cryptocurrencies in circulation with a total market value of over US $500 billion! Today, Bitcoin itself has a market valuation of over US $200 billion.  

While we have Bitcoin to thank for giving us blockchain, the technology has evolved significantly since its nascent years. Today, everyone is talking about blockchain, predicting its growth and looking for ways to leverage it. Blockchain-driven innovation is mushrooming across industries and we can certainly expect it to have a significant impact on the financial services industry. 

Many financial services companies are concerned about public blockchains such as Bitcoin and Ethereum because of issues related to permissions, governance, privacy, transparency, performance, and throughput. In my view, this calls for strategic collaboration between established players and start-ups to develop innovative solutions either on available platforms or using new protocols. The value to be gained through disruptive start-ups cannot be underscored enough. Consider how the equity investment in blockchain start-ups grew from US $98 million in 2013 to nearly US $1 billion in 2017[1].

The good news is that many innovative solutions are already underway. In 2017, Ripple and 3 banks deployed a cross-border payments service for corporate payments and retail remittances. The IZNES blockchain platform for fund administration developed by SETL and four asset management firms went live in January 2018[2]. This year, we can also expect a leading American post-trade financial services company to implement a blockchain solution for credit default swap settlement[3]. Finally, the B3i consortium will also go live with a blockchain solution for property catastrophe excess-of-loss reinsurance contracts. 

Blockchain helps companies streamline processes such as reconciling data across various market participants, auditing records for regulatory purposes, authenticating counterparties, verifying origin of transactions, and reducing record duplication across businesses. However, its greatest benefit is the staggering operating cost reduction that it delivers. The above mentioned project by the American post-trade financial services company has already reported savings of 20-30%, the B3i project for reinsurance contracts has achieved productivity gains of up to 30%, and an industry-wide commodity trading project reported 33% increase in trader efficiency. 

Clearly, blockchain has a lot to deliver to financial services companies. So, why aren't we seeing an increase in adoption? The reasons for this are many. For blockchain to work, there should be collaboration between multiple participants across the value chain. Some companies may face technology-related issues when implementing blockchain across their landscape. Further, the general lack of understanding about blockchain and uncertainty about its return on investment can lead to poor management buy-in.

So, if you are a financial services company, here's what I recommend:
Stay updated with new developments in blockchain
Ensure that senior management is up-to-speed on developments
Study your business processes to understand which ones are likely to be impacted by blockchain
Explore partnerships with other financial services companies
Develop a broad range of internal capabilities around blockchain technology

A look at some of the emerging use cases for blockchain reveals how it can be leveraged across the banking and financial services industry. For instance, EdgeVerve, an Infosys company, is partnering with 11 banks to create a permission distributed ledger system that simplifies and accelerates the adoption of blockchain for banks[4,5]. Infosys has also published the Blockchain Revolution Report that provides deep insights into the applications, value and impact of blockchain. The report is a useful resource for companies looking to further their understanding of this innovative technology. With the right understanding, strategy and insights, financial services companies can position themselves to win big and sustain their edge with blockchain.

References

1. Blockchain Investment Trends in Review", CB Insights, October 2017
2. SETL and 4 asset management firms are launching IZNES, pan-European fund record-keeping platform based on blockchain technology",
        SETL Press Release, September 2017, https://setl.io/
3. DTCC Selects IBM, AXONI and R3 to Develop DTCC's Distributed Ledger Solution for Derivatives Processing", 
        DTCC Press Release, January 2017,
        http://www.dtcc.com/news/2017/january/09/dtcc-selects-ibm-axoni-and-r3-to-develop-dtccs-distributed-ledger-solution
4. Reference: "Infosys Finacle Launches Blockchain Based Trade Finance Solution", Infosys Press Release, November 2017
        https://www.infosys.com/newsroom/press-releases/Pages/finacle-trade-connect-solution.aspx
5. DTCC Selects IBM, AXONI and R3 to Develop DTCC's Distributed Ledger Solution for Derivatives Processing", 
        DTCC Press Release, January 2017, 
        http://www.dtcc.com/news/2017/january/09/dtcc-selects-ibm-axoni-and-r3-to-develop-dtccs-distributed-ledger-solution

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