Blockchain probably won’t solve all the world’s financial problems, as devoutly as innovators and enthusiasts may hope and believe that it can. At any rate, it’s not going to solve all of them at once with the technology available today.
Esther Pigg, SVP Product Strategy of FIS, says blockchain’s potential benefits will instead be discovered gradually, and will change the industry even more gradually. Wholesale change doesn’t just happen overnight, especially on a global scale — that’s why it took so long to develop the handful of trusted global systems in place today.
Pigg isn’t against blockchain. She’s not even a skeptic — just a realist. FIS is conducting internal proofs of concept and piloting blockchain technologies with U.S. and global clients. Pigg said this is the approach that must be taken — a calculated one, based first on understanding the tech and, second, on applying it to specific problems and use cases where it can deliver results that are better than what organizations are achieving today.
In a recent interview with Karen Webster, Pigg explained how the industry needs to change its thinking around blockchain and what it will take, realistically, to start deploying the technology where it can deliver the greatest benefits.
It Starts With Understanding
FIS works with financial institutions (FIs) of all shapes and sizes. Pigg said, particularly among the medium and smaller-sized ones, there’s a lot of confusion around what blockchain even is and how it can practically benefit them. That’s why Pigg set out to collect as much info as possible and compile that knowledge into a friendly blog post to help them understand what they were getting into.
There’s a lot of information out there and, though it’s not necessarily contradictory, it is extremely diverse and complex. Her goal was to piece together the core snippets to create a conceptual understanding, divorced from the nuances of how ledger technology or encryption actually work.
At its most basic level, this is how Pigg would describe blockchain:
“Imagine a spreadsheet (ledger) that is duplicated (distributed) thousands of times across a network of computers (nodes). This spreadsheet is constantly reconciled (by miners) and updated instantly with new transactions (blocks). The spreadsheets are permanent, public and verifiable (proof of work).”
In other words, she said, it’s like a big, shared Excel spreadsheet that’s everywhere, updated all the time in real time and verified as new cells (or blocks) are added.
“I’m a product strategist, not a programmer or a tech geek — although I do enjoy it,” Pigg added.
Many FI executives are in those same shoes, adjacent to this confusing new technology without the background and tools they need to understand it. That’s why Pigg really did her homework on this — and because she did, she hopes that maybe others won’t have to do the same.
Use Cases For Blockchain
Pigg said organizations that want to start using blockchain must ask: “What is the real problem this will solve that we can’t solve in any other way?” The point is not just to implement new technology to do tasks the company is already doing, she said. The point is to find areas that can be improved.
Today, those are problems like supply chain, security and authentication, cumbersome and manually intensive “know your customer” (KYC) processes, and cross-border payments.
Blockchain isn’t fast, said Pigg. The actual processing capabilities are so far from real time that using cryptocurrencies for everyday transactions simply doesn’t make sense at this juncture. Bitcoin only processes seven transactions a second, while Ripple can handle slightly more at 1,000 per second. Neither even comes close to, say, Visa, which can process 24,000 transactions in a second.
Pigg said even transactions that take hours to complete would be better than cross-border payments that can take days. So, there’s a use case where blockchain could deliver a distinct benefit and improve a certain type of activity — and that’s what FIs should be looking for when they start to think about blockchain.
Maybe, she said, innovators will one day be able to combine the best of blockchain and the best of traditional payments rails to create a distributed ledger technology that operates in or near real time. But today, the focus must be on the true capabilities of existing tech and how they could be applied.
Deployment And Scale
Don’t expect to replace existing tools and processes when blockchain enters the picture. Most organizations, said Pigg, will continue doing what they’ve been doing as they introduce a new distributed ledger environment. Instead, ask what integration will look like. What will the touch points be? How do different blockchain options — Ripple, Ethereum, Hyperledger — work in different use cases, and which one is right for the organization? Ask how clients will monetize the technology if the FI provides it.
Pigg said FIS sees that vetting process as its responsibility to FIs and merchants that have put their trust in the company as a provider. On the other end, the blockchain tech buyers are learning the realities of what blockchain can do and how it can work in conjunction with existing techs and processes. They’re learning that some organizations are willing to take a chance on a proof of concept or pilot, while others remain more hesitant.
In short, she said, everyone is still learning here. A rip-and-replace mission is too impactful and risks doing organizations more harm than good. Instead, start by identifying areas of friction, evaluate the opportunity and ask if the juice is worth the squeeze.
“For specific use cases,” Pigg concluded, “if there are things that it could do, we first have to answer the question: Should we do it?”