WIXLIB

Making Blockchaina Reality

ContentsSummaryUntil recently, the world of finance was seen as a highly technical, highly regulated industry dominated bygiant banks that resisted disruption (other than the occasional global meltdown). However, the finance industryis now riding an entrepreneurial wave, with blockchain at the helm.Summary 03No Responsibility, No Progress 04The Remittance Revolution 05Fear of the Unknown? 06Collaboration at the Core 07Access the Infrastructure, Access the Opportunity 08Getting Ready 10Demand for start-up services is now stronger than ever, piqued bywidespread frustration with historically cumbersome big banks thatwere unable to move at the speed or direction that was needed tomeet market need. However, as financial institutions realise thattheir only way to ride this wave is to embrace (and often partner)with these new start-ups, we are set to see a perfect marriagenever before witnessed.So, why have financial institutions been so slow to embracetechnology, and in particular, blockchain? 02 03

No Responsibility,No ProgressBlockchain could represent the next bigshift in technology over the next fiveyears but the pace of innovation withinfinancial institutions seems to be slow.Lack of accountability is the main reason that hinders organizationsin embracing innovation, and blockchain is not different from thisperspective, as affirmed by 46% of respondents in a recent surveyby Deloitte1.What is the biggest concern that is preventingyou from starting this journey?The RemittanceRevolutionPatrick Laurent, Partner at Deloitte comments that “these resultsare not surprising, but give a clear indication of the immediateneed to begin learning courses, workshops and develop Proof ofConcepts (PoCs) in order to develop a good understanding of thetechnology and to mobilise staff with the capabilities to act on it.”From what Deloitte observe in the market, 2016 is the year whichsees the move from the across EMEA to gain a clear understandingof their current plans and status with blockchain technology hypephase to prototype phase. They are predicting the developmentand launch of the first blockchain PoCs within the financialservices industry at a company level and banks must respond tothis. However, in this scenario, the majority of financial institutionsinterviewed seem unprepared to tackle the upcoming challenge.26%46%Regulatory/ legaluncertaintyNo ty3%SustainabilitySecurityOne factor that is driving this market disruption is the movement ofmoney from a period of high dollar amount and low transactionvolumes to low dollar amounts and high transaction volume.This is best exemplified by the explosive growth in internationalremittance and SME cross border payments, both equating toover 6 Trillion a year. Earlier this year Deloitte commissioned asurvey to financial institutions across the globe to understand howFinancial Services are reacting to the blockchain revolution anda staggering 60% indicated that this was the area where they arelooking to focus on (fig.1).International money transfers are thought to represent a 6Trillion annual opportunity and this may be the reason why somany interviewed saw their case for blockchain here, but why?Currently most consumers and SMEs choose to use moneytransfer intermediaries rather than their own banks becauseWhile we accept we are in theearly stages of learning andadopting blockchain technology,we question why the vastmajority of respondents whounderstand the profound impactthe technology can have, are yetto appoint people within theirorganisation to get to grips with it.Blockchain technologies, like the Ripple Protocol , enable thecreation of the lower cost system that banks need to compete.Because these systems use a distributed ledger approach,banks can utilise real-time settlement (RTS). This lowers theadministrative and opportunity costs associated with the currentcorrespondent banking system and as a result, customers canbe retained. But how ready are banks to make this opportunitya reality and will SWIFTs Global Payments Innovation Initiative(GPII)2 , designed to improve the cross-border paymentsexperience, take the wind out of those sails?International money transfers60%Securities clearing and settlement23%KYC and anti-money laundering20%Fiat currency payment and settlement19%Creating transparency19%Decentralised notaryFig.1.What will yourinitial blockchainuse case be?Patrick Laurent, Partner at DeloitteBlockchain could represent the next big shift in technology over thenext five years but the pace of innovation within financial institutionsseems to be slow; for example very few banks have a blockchainlab. A radical change in culture is required to re-think banks’business models in order to prosper in the future. So banks mustdevote adequate focus and manpower if they are to keep up pacewith the market, but, once established, focus must be on the truebenefit rather than just exploratory. So which areas do banks seethe most opportunity? 0416%Fraud deterrent15%Asset registries12%Security issuance and transfer11%Prediction and stock markets7%Syndicated lending7%Securities asset servicing7%Trade surveillance5%Collateral management5%Derivatives contracts and clearing5%Other1) Deloitte EFMA KBC Blockchain Survey, April 2016 - an in depth survey to 3000 C-level managers within the finance industryacross EMEA to gain a clear understanding of their current plans and status with blockchain technologythe costs structures are too high. If banks wants to retain theircustomers and earn extra revenues, they must adopt a lowercost system. And it is clear that banks are starting realise thatblockchain may be the answer.9%2) SWIFT have announced that 73 banks worldwide have now joined its Global Payments Innovation Initiative (GPII), designed toimprove the cross-border payments experience. Recent banks to join the initiative include, Alfa-Bank, Axis Bank, Banco de Créditodel Peru, Banco do Brasil, Bangkok Bank, Bank of Nova Scotia, Banque Européenne d’investissement, CaixaBank, CanadianImperial Bank of Commerce, Credit Agricole, CTBC Bank, E.Sun Commercial Bank, Fifth Third Bank, ICICI Bank, Itaù Unibanco,Mashreq Bank, Promsvyazbank, Rabobank, Svenska Handelsbanken, Swedbank, TMB Bank and U.S. Bank 05

This year will see thedevelopment andlaunch of the firstblockchain proof ofconcepts in FSI at acompany level.Patrick Laurent, Partner at DeloitteFear of theUnknown?Collaborationat the CoreIt was recently claimed that 2016 Wall Street blockchaininvestment alone is set to top 1Billion3, but how prepared arebanks in general? Deloitte survey found that despite a risingawareness about the potential of blockchain, the majority offinancial institutions are still at the beginning of their journey withthis technology.Technology achieves nothing new without trusted parties(including specialist partners) and networks where all participantcan do business together. A good example can be found withinSouth East Asia where some small banks, which haveoperations in multiple entities, are already undertakingcross border (RTS) through the blockchain using Rippleinfrastructure.Where are you in the blockchain journey?The rationale is that the cost of running RTS was so much lowerthan using SWIFT with its associated costs. Because theyare actively using blockchain already, they are ahead ofunderstanding alternative ledgers, so when the inflection pointdoes hit, they are ready.43%28%LearningWe have notyet started21%3%Investment instart-ups3%Collaboration in group/market initiativesBy adopting this approach they can have real calculationson how the system benefits them rather than waiting for theultimate R34 report to come out, then they can be ahead of thegame by being able to develop products accordingly.So cheap, efficient international RTS using blockchain works forsmall, banks with multiple entities but what about the majority?Build solutionDespite the recent news that a number of leading financialinstitutions are exploring the technology through workinggroups, including R3, none of the respondent firms fromthe survey had developed their own centre of excellence, eventhough some leading players had set up incubators and starteddeveloping internal capabilities. Rather, the 71% majority areeither learning about blockchain (43%) or have not yet startedtheir journey (28%) and 50% have not yet appointed ablockchain business owner. Deloitte predict that 2016 is the yearwhich sees the move from the hype phase to prototype phase.They believe that this year will see the development and launch ofthe first blockchain proof of concepts in FSI at a company level.In this scenario, the majority of financial institutions interviewedseem unprepared to tackle the upcoming challenge. So howcan banks quickly catch up to avoid missing thisopportunity?3) 2016 Wall Street blockchain investment to top 1bn http://bit.ly/28RvOk2 06Small banks, which haveoperations in multiple entities,are already undertaking crossborder (RTS) through theblockchain.Pavel Bains, CEO, Bluzelle4) R3 (R3CEV LLC) is a blockchain technology company that leads a consortium of45 financial companies in research and development of blockchain usage in thefinancial system. 07