This year could be the year that blockchain emerges from its current status as a largely hypothetical game-changer to one that’s put to the test. While few working applications of blockchain technology are in use today by financial service providers, the industry continues to place its confidence — and money — behind the technology.
The latest is global consulting firm McKinsey, whose new report has put a price tag on the potential of blockchain: $110 billion.
That’s how much the global financial services industry (and, ultimately, their customers) could save by integrating blockchain solutions, the company said in its paper, published earlier this month. How and where that money is saved, though, depends on the use case of distributed ledger technology.
Nixing paper-based processes, reducing errors, minimizing fees and mitigating costly risk all contribute to cost savings for the financial services space, McKinsey concluded.
Where Blockchain Makes An Impact
The report identified dozens of potential use cases of the tool.
Trade finance, for instance, could see up to $17 billion in new value by integrating blockchain, while cross-border B2B payments could see even more: up to an estimated $60 billion, the report found. Identify fraud and compliance management, like KYC and AML, are also high-value propositions for the tool.
McKinsey isn’t the first to identify these potential use cases for blockchain, but the report concluded that one area in particular could benefit the most from the innovation — and it’s a sector not commonly cited by blockchain analysts: insurance.
“In insurance, blockchains have potential for impact across the entire value chain,” McKinsey declared. From product development through underwriting, pricing, payment and collections, claims, back-office functions and risk capital, distributed ledger technology could have a hand in all phases of the insurance space.
McKinsey presented its findings earlier this month to the Department of Treasury Federal Insurance Office during its first committee meeting of the year. The findings, presented by McKinsey Associate Partner Matt Higginson, demonstrated the need for insurance industry stakeholders — and that includes the committee — to get educated on distributed ledger technology and collaborate with startups and insurance companies to explore ways to implement the tool, he said. Collaboration, McKinsey concluded in its report, is paramount to the success of real-world applications of blockchain.
While many analysts believe 2017 will be the year that blockchain moves from the testing phase and into real-world, working applications, McKinsey noted that, in the insurance space and other areas, there is still time for blockchain to mature.
In a survey of top executives at various financial institutions, McKinsey found that half of these professionals are still in the “wait-and-see” phase of blockchain implementation. Only 6 percent have a fully implemented solution in place. The rest, researchers found, are early investors in the technology, partnering with peers and blockchain innovators, and are moving towards internal pilots of these technologies.
McKinsey surveyed these professionals twice: once in Feb. 2016 and then again three months later in May. Interestingly, more executives in May believed it would take longer for blockchain to reach maturity and see real-world applications. In February, a whopping 46 percent said it would take zero to 18 months for blockchain to make an impact, with 49 percent expecting it to take three to five years. But by May, 0 percent said the impact would take zero to 18 months, and only 14 percent expected the impact to take between three and five years. Instead, 86 percent said it would take longer than five years — and maybe never — for blockchain to make an impact.
It’s unclear what those executives think about how long it will take blockchain to make a tangible impact on their markets today. But with more companies and government players investing in blockchain, it would seem that they are willing to wait to gain their share of what McKinsey estimates to be as much as $110 billion in savings.