Distributed ledger technology, more commonly known as blockchain, has great potential to drive simplicity and efficiency through new financial infrastructure and processes, but it should not be seen as the only technological tool forming the foundation of next generation financial services.
This is the main finding of a newly released World Economic Forum report entitled, “Opportunities & Obstacles: Blockchain and the Future of Financial Infrastructure.” The report was developed in conjunction with Deloitte.
“Throughout the last 50 years, the financial services industry has embraced new technologies that now seem commonplace but were once cutting edge, including ATMs, credit cards, and electronic trading,” said Giancarlo Bruno, Senior Director, Head of Financial Services Industries, World Economic Forum.
“In the same way, blockchain technology is moving from the margins of the finance industry to the main stage, and will continue to help build innovative solutions across the industry, becoming ever more integrated into the identity of financial services.”
According to the report, the industry is at a unique inflection point with tremendous opportunity, as multiple technologies are set to drive the next wave of financial services innovation. Therefore, distributed ledger technology should be seen as a critical part of any successful financial services program today. However, the report also points out key hurdles ahead of large scale implementation of blockchain.
“Though technological innovation has been fundamental to industry transformation, there are other steps that will play a role in this disruption as well,” says Bob Contri, Global Financial Services Industry leader, Deloitte Global.
“Before full adoption is possible, there are factors that need to be addressed, including an uncertain regulatory environment, lack of standardization efforts, and the need for a formal legal framework.”
The report highlights that applications of blockchain will differ by use case, each leveraging the technology in different ways for a diverse range of benefits. Platforms such as Digital Identity1 and Digital Fiat2 will amplify benefits and broaden the application of distributed ledger technology to new industries.
The report also says that the most impactful blockchain applications will require deep collaboration between incumbents, innovators and regulators, adding complexity and delaying the implementation horizon.
“Blockchain is expected to have the greatest impact when applied to business problems involving: a shared repository of information, multiple writers, minimal trust, the presence of intermediaries and interdependencies between transactions,” says Rob Galaski, partner with Deloitte Canada. Rob also leads the Deloitte team engaged on WEF’s Disruptive Innovation in Financial Services work.
“Without these conditions, Blockchain may not be the answer.”
While the industry will need to address key hurdles to implementation, distributed ledger technology will drastically challenge the status quo.
“The financial services infrastructure will be radically changed by blockchain technology, as it will re-draw processes and call into question policies that are the groundwork of today’s business models,” says Jesse McWaters, Project Lead, Disruptive Innovation in Financial Services, World Economic Forum.