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Blockchain emerges from financial toolbox

New WEF report examines distributed ledger technology's impact on the future of financial infrastructure

Saipan, 5 October 2016 — 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 World Economic Forum report entitled, “Opportunities & obstacles: Blockchain and the future of financial infrastructure”. The report was developed in conjunction with Deloitte.

The Distributed Ledger Technology project is the most recent phase of the Forum’s ongoing Disruptive Innovation in Financial Services work. The report draws on over 12 months of research, engaging 200+ industry leaders and subject matter experts through interviews and multi-stakeholder workshops.

“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. 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,” said Bob Contri, Global Financial Services Industry leader, Deloitte Global.

“The ability to use blockchain seamlessly across borders is a feature that is transformative for the financial services industry. Southeast Asia – a region where there are marked differences in operational and regulatory landscapes, and significant diversity in the level of development of financial systems – has the potential to gain the most from the use of this technology. Blockchain serves to increase transparency and improve efficiency for financial institutions. With the right investment and close collaboration between private and public sectors, blockchain can improve the way business is done,” shared Ho Kok Yong, Southeast Asia Financial Services Industry Leader, Deloitte Southeast Asia.

Additional findings from the report include:

  • Blockchain is not the only solution: Instead, it should be viewed as one of many technologies that will form the foundation of next generation financial services infrastructure.
  • There is no “one-size fits all” solution: Applications of blockchain will differ by use case, each leveraging the technology in different ways for a diverse range of benefits.
  • Emerging capabilities will deepen blockchain’s impact: Platforms such as Digital Identity1 and Digital Fiat2 will amplify benefits and broaden the application of distributed ledger technology to new industries.
  • Collaboration will yield the strongest progress: The most impactful blockchain applications will require deep collaboration between incumbents, innovators and regulators, adding complexity and delaying the implementation horizon.
  • Innovations in blockchain are challenging the status quo: New financial services infrastructure built on distributed ledger technology will re-draw processes and call into question the practices that are foundational to today’s business models.

“While there is no doubting the transformative potential of blockchain technology, it is not a blanket cure for inefficiency in Financial Services. At this stage of evolution, the critical task is knowing where to focus your efforts. 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. Without these conditions, Blockchain may not be the answer,” added Rob Galaski, partner with Deloitte Canada. Galaski also leads the Deloitte team engaged on WEF’s Disruptive Innovation in Financial Services work.

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,” Jesse McWaters, Project Lead, Disruptive Innovation in Financial Services, World Economic Forum. “Our research looks to the future state of blockchain technology, and by starting this conversation, we believe this will help further build perspective for what is to come.”

1 Digital Identity platforms refer to a fully digital system for storing and transferring identity attributes that could be directly integrated into distributed financial infrastructure.
2 Digital Fiat (legal tender) currencies are issued by central banks and could be employed within distributed financial infrastructure, ensuring the availability of liquidity even in the event of systemic instability.
 

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