Oliver Bussmann and Nick Williamson explore the possibilities of blockchain being more effective in lightly regulated sectors.

As two people who have been working closely with blockchain for a while now – me as a fintech adviser and former Group CIO of UBS, Nick as the CEO and founder of Credits – we have no doubt about the technology’s potential to radically transform the financial industry. A far better way to build and maintain interconnected ledgers – the heart of the financial system – it seems predestined for the job.

Yet, while banks and fintech companies around the world are busy developing blockchain-based solutions, we are likely to see blockchain “go live” in other industries first. This is something of a paradox, so we think it’s worth a closer look.

Regulation, regulation, regulation

As I can attest to from my own experience, the main drag on implementing innovation in financial services is regulation. As part of one of the most highly regulated sectors in the world, banks will need to wait for regulatory certainty on any number of issues before they can release blockchain-based platforms. Stringent rules regarding collecting, storing and sharing customer data add layers of rigorous validation, verification and internal sign-off on top of the regulatory approval.

Even though many regulators are actively supporting banks in exploring blockchain, this is simply not an environment geared to early adoption in the wild.

The fact that banks are coping with dwindling IT budgets, as well as heavy legacy IT investment, is an obstacle as well. As, to an extent, are legacy mindsets: the financial industry is heavily invested in centralised models. Blockchain represents the opposite worldview.

We believe blockchain will be implemented first in more lightly regulated sectors, particularly those which face challenges in managing data access control and ensuring data integrity. This can be sensitive, personally identifiable information (PII) such as healthcare records, competitive secrets or other internal corporate data. Or it could be intellectual property, as with managing copyright for music or art.

Areas poised for takeoff include e-government, supply chain management and finance, insurance, real estate and the Internet of Things. BHP Billiton’s announcement last week that it was using blockchain to improve its supply chain processes is a perfect example of how this is already happening.

Useful use cases for all

At Credits, Nick has been observing this trend closely, too. The company has been exploring a number of use cases outside of financial services, such as proof of identity, procurement processes and interdepartmental payments. It recently worked with a client on a corporate identity blockchain solution.

Credits has also been very active in e-government, where blockchain has the potential to inject trust and accountability into many processes. This includes providing means to share sensitive personal data between departments that prevents data leaks, while still allowing for data integrity checks.

The good news for banks is that many non-financial use cases also provide compelling first customers for the eventual financial ones. If we can solve supply chain management, for example, then we’re not far from solving supply chain finance.

So while we may not see distributed ledgers taking over in financial services right away, this shouldn’t be interpreted as meaning it will never happen. When it comes to blockchain and banks, there is no escaping destiny.

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– This article is reproduced with kind permission. Some minor changes have been made to reflect BankNXT style considerations. Read more here. Photo: Unsplash.com

About the author

Oliver Bussmann

Oliver Bussmann has a reputation as a technology thought leader and driver of large-scale transformation at global organisations in the financial services and hi-tech industries. As group chief information officer of UBS, he successfully led a major IT transformation effort, instituted a new IT innovation framework, and established UBS as a pioneer in the development of blockchain for use in financial services. Prior to this, Oliver was global chief information officer at SAP for four years, and was CIO for North America & Mexico at Allianz. Previous roles include executive positions at Deutsche Bank and IBM.

1 Comment

  • Cannot agree more. Banks need to invest in and work with Fintech community to explore new possibilities and find new business models. Simply using Blockchain to support the existing business model is probably not going to take them too far. It, thus, makes sense to observe and measure for a strategic direction. Without the necessary infrastructure in place first which includes identity, security and privacy solutions along with clarity on the regulatory aspects its going to be too difficult to find a direction.

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