Banks and FinTechs are going in on blockchain technology, as two separate reports released earlier this month conclude.
Analysis from Corporate Insight and Infosys Finacle say banks and FinTechs are readying increased involvement and investment in distributed ledger technologies. A report from Corporate Insight, “Blockchain Solutions and the Future of Finance,” declares blockchain to be the future of the financial services world.
“In the past two years, financial services firms and technology providers have made significant strides in turning the hype around blockchain into reality,” said Corporate Insight Analyst Jennifer Butler in a statement announcing the report. “Financial services firms are investing in blockchain to access its potential for reducing operational inefficiencies and increasing market transparency. While the near-term industry impact of blockchain will be evolutionary rather than revolutionary, we expect these investments to continue and for blockchain-driven change to occur incrementally over the next few years.”
To draw these conclusions, Corporate Insight interviewed FinTechs that are already using blockchain technology in their solutions. Nine of the 14 companies surveyed said they are readying to introduce their blockchain-based offering between now and early next year. And while financial services is a major are of focus for these companies — using blockchain for solutions like cross-border payments, for example — these players are also exploring how to use the tool for non-financial purposes, like KYC compliance and cybersecurity.
Infosys’s report, “Blockchain Technology: From Hype To Reality,” turned to traditional banks to explore the progress of blockchain adoption in the financial services space.
Researchers found that half of banks surveyed said they have already invested in blockchain or will do so this year, with average investments totaling $1 million. A third of the banks surveyed said they expect to see commercial adoption of blockchain tools by next year, while the majority said it’s likely to begin by 2020.
Interestingly, many of these traditional banks are working with FinTechs like the ones surveyed by Corporate Insight to develop their blockchain strategies, while nearly a third of the banks surveyed said they prefer to join a blockchain consortium to collaborate on the development of the technology.
“A distributed technology platform such as blockchain can achieve its true potential only when supported by a network of businesses and partnerships,” Infosys concluded, adding that 80 percent of banks surveyed are in some type of partnership or collaborative effort.
The FIs surveyed said they anticipate cross-border payments to see some of the earliest disruption from blockchain.
But both Corporate Insight and Infosys identified some challenges in making blockchain financial services a reality.
Corporate Insight’s survey found that FinTechs have several concerns about technology, with one of the most common being the difficulty to fix human error.
“For example,” the company said in its announcement, “if a person mistakenly purchases a large quantity of securities, the immutability of a blockchain would make it challenging to fix the error.” With this in mind, FinTechs that are developing blockchain-based tools are targeting these unique issues as they prepare for solutions to go mainstream.
Infosys, meanwhile, found that banks are most concerned with a lack of cooperation between FIs and FinTechs to ensure that blockchain solutions are operating properly.
“Though world over there are a lot of consortiums that are emerging/have emerged, the cooperation has to extend to the next level, where regulators, compliance keepers, banks and FIs — all such institutions — collaborate along with technology firms,” the report concluded. Other issues, like technology limitations and a lack of understanding of blockchain, are also weighing on banks’ minds.
Interestingly, the two reports represent this issue, with one focusing on FinTech’s views of blockchain and the other focusing on banks’. But as blockchain solutions begin to permeate into reality and as banks and FinTechs expand their collaborations, the dialogue over the future of blockchain could soon include both fields together.