I had the pleasure of listening to a couple of gentlemen on one of my train journeys home this week. They were discussing Blockchain - with one of the individuals portraying himself as a Blockchain expert. However, I soon realised this was another example of someone picking up on the hype around this topic without actually understanding how it works or can be adopted.
I don’t perceive myself as a Blockchain expert but have found my understanding and opinions strengthening overtime and believe the opportunities it provides are almost endless. I have clearly bought into the hype but wanted to try to verify to myself if this was well founded.
From an early stage, I was convinced that the potential for Blockchain was huge. My view was that (due to its sound principles and in many ways, simplistic technical concept) it could deliver immense, tangible benefits, particularly across, but by no means limited to, the Financial Services sector. The initial problem I had was that it seemed to be the answer to a number of unknown problems, and this, coincidentally, is where the two gentlemen on the train were on their journey of ‘Blockchain Enlightenment’.
Having gained a greater understanding over the last 12 months, I am now able to recognise how and where Blockchain will deliver significant operational efficiencies, reduced costs and reduced time cycles across the Financial Services sector. These benefits are significant enough for the giants of the banking industry to raise more than an eyebrow and to start to shift some of their technology budget in this direction (it can’t all go in the direction of regulation and compliance). Deutsche Bank has confirmed it has a portfolio of projects involving Blockchain prototypes. Bank of Ireland announced earlier this year that it had completed a successful joint proof of concept with Deloitte surrounding trade reporting and that the bank is continuously investing into other Blockchain projects. A number of industry start-ups have announced that they are working with multiple banks to conduct research and experiments with the aim of creating a new industry-wide Blockchain. And just recently ICAP announced a major project in the post trade space, and gives what I consider an interesting and credible view of the timelines for the wider adoption of Blockchain.
I will therefore go out on a limb and say that the banking sector is truly embracing this new technology and that Blockchain is becoming the answer to many real questions that are now being asked.
In the insurance sector it is fair to say operational efficiency is lagging somewhat, with STP still a dream, not a reality for much of the exchanging of data in this sector. The commercial insurance value chain is long, process heavy and includes brokers, insurers, reinsurers, retrocessionairies, insured corporations, their captive insurance vehicles, third parties and other service providers. The processes and parties across this entire value chain duplicate a great deal of commonly used data. The recognised challenges with this include duplication of efforts, risk of error and of course the impact on the overheads and ultimately costs of all parties involved. Reassuringly, however, Blockchain is gathering momentum here as well.
Aegon, Allianz, Munich Re, Swiss Re and Zurich collectively have launched the Blockchain Insurance Industry Initiative - B3i – aimed at exploring the potential of distributed ledger technologies to better serve clients through faster, more convenient and secure services - demonstrating that Blockchain has captured their interest.
The London Market TOM (target operating model) initiative is aiming to deliver significant streamlining and operational efficiencies. This initiative will no doubt be closely exploring the benefits that Blockchain can bring. Mobilising this market for such a change will not be without its challenges, as it will require the collaboration between parties of different size and scale, technical competency and cultural appetite.
The indicators are that the technology phenomenon that is Blockchain appears likely to become a mainstream distributed transaction ledger over the next 5-10 years. The shift from idea and theory to real life proof of concept and application is now underway.