As blockchain emerges, financial institutions are coming to grips with fundamental changes in how they do business. I heard the story first-hand from experts during a recent panel discussion at the SAP Financial Services Innovation Summit held at the SAP Leonardo Center in New York, which was moderated by Spiros Margaris, VC and Founder of Margaris Advisory.
L to R: Spiros Margaris, VC and Founder of Margaris Advisory; Dan O’Prey, Chief Marketing Officer at Digital Asset ; Todd McDonald, Co-Founder and Head of Partnerships at R3, Ron Quaranta, Founder and Chairman of the Wall Street Blockchain Alliance.
Education on value is priority
Ron Quaranta, Founder and Chairman of the Wall Street Blockchain Alliance, a New York-based non-profit institution, called for more market education to spark blockchain understanding and eventual adoption.
“When I hear about people criticizing what blockchain represents, it tells me they don’t understand what the value proposition is to their organization and global financial markets,” said Quaranta. “As a trade association, we spend a lot of time with our members to understand how these capabilities are impacting the global ecosystem.”
Even so, Quaranta was encouraged by the tone and tempo of conversations across the financial industry. “Ten years ago, it would be get out of my office. Now many of our members across the global industry understand they have to bring a more collaborative feel to conversations.”
Todd McDonald, Co-Founder and Head of Partnerships at R3, which is best-known for its blockchain platform called Corda, likened blockchain’s colossal popularity to a child actor who grew up too fast.
“We’re all working hard to catch up to the hype, and conversations are changing,” he said. “First it was, what is this thing and why should I care. Now companies want to know how they can implement blockchain and when it will be ready to go live. Having companies like SAP pay attention to blockchain, and put it into their strategy is a massive step forward. To get past the hype, we must talk about how to use it. Financial organizations want help to start a culture change in their institution. It now has to be driven from the bottom up, as well as top down.”
Why banks must change
For all the hype about blockchain, Dan O’Prey, Chief Marketing Officer at Digital Asset, a 3-year old blockchain startup based in New York, saw the financial industry past the tipping point.
“There’s been far too much capital and time invested [in blockchain] by some of the smartest people on the planet that something major will come out,” he said. “We don’t believe financial institutions will be totally displaced, but they will need to change.”
Blockchain’s decentralized model upends the time-honored banking business model, challenging institutions to think and operate differently. “Anytime you have this kind of peer-to-peer technology, companies lose out, especially those in the middle of transactions because the value chain is rearranged,” said McDonald.
When blockchain becomes real
McDonald, who also serves on the governing board for the Hyperledger Foundation, said three concepts had to be in place to make blockchain real and impactful.
“You need to have a representation of the digital asset, a way to identify all the participants on the network, and have a true digital identity operating in a less centralized way,” he said. “You can’t just have POCs exploring one part of the life cycle.”
O’Prey, who is also Chair of Marketing Committee at Hyperledger, said that these business connections are beginning to happen. “An example is how the SAP Innovation Center is working with business units to help identify a clear business driver with understood benefits, rather than technology for technology’s sake. One of the big stories next year will be how the technology giants harness blockchain – whether they partner, build their own or use open source.”
What to expect in 2018
While cost-savings is the primary driver of blockchain for banks, the real excitement is in the potential revenue opportunities. “The next big phase is what new business models and products are enabled that weren’t possible before,” said O’Prey. “Blockchain can make it easier to add new products faster. With systems that span multiple organizations, institutions can provide new services on top.”
McDonald saw opportunities for banks in using blockchain to extend credit. He said that his company was working with banks in Europe and a startup to build an open account invoice and financing platform to get closer to customers and extend credit based on updated risk scoring. “With the distributed ledger, what I see is what you see, and we agree on a set of shared facts,” he said. “Corda was built to be enterprise-ready, plugging into legacy infrastructures. The last mile into the enterprise will most likely come through firms like SAP.”
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