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Blockchain without the hype: how to be part of the evolution
(pictured: Patrick Lemmens and Jeroen van Oerle)
To date it is the big banks which have invested most in the development of distributed ledger technologies, commonly known as ‘blockchain’. But uses other than streamlined payments are rapidly being explored. New research calmly examines the likely impact for all financial services players.
The research, by investment bank and fund manager Robeco, warns that pre-conditions for survival of fianancial services incumbents are technological competence and a proactive attitude.
The research paper – ‘Distributed Ledger Technology for the Financial Industry: Blockchain Administration 3.0’ – says that the banks have led the way through the formation of the consortium known as R3CEV.
The authors, Patrick Lemmens and Jeroen van Oerle, of Robeco, view the blockchain technology as an enabler of efficiency gains and have dubbed it “Administration 3.0”.
They say: “We think the technology is currently being hyped, as witnessed by large investment flows from private investors. At the same time, we are convinced that this technology is here to stay in the long run. The technology is currently in its infancy stage and there are several challenges to overcome before mass adoption is possible. Regulatory and technical issues are most decisive. In this report we argue there is a need for standardization to overcome hurdles, which we believe is best accomplished through the creation of consortia that include all relevant stakeholders.”
Van Oerle and Lemmens liken the disruption and opportunities to what happened over the past 10-15 years in the music industry where Napster was the first company which allowed large-scale online distribution – and wore a lot of the opposition – but Spotify emerged as leader.
“Who will eventually offer this distributed ledger technology [in financial services] is of lesser importance for now,” they say. “In terms of losers, we argue that companies in the ‘quick win’ areas are most at risk. Blockchain technology can make quick wins in labor intensive, costly and lengthy processes. Companies operating in such environments should be pragmatic with regard to blockchain implementation.”
They advise financial organisations that the main reason for most to investigate the possibilities from blockchain is the substantial potential cost savings on personnel and administration rather than the technology. For asset managers, the authors advise the establishment of a major consortium to allow the setting of standards. They say there is a risk that multiple projects will eventually not be compatible.
“We see very clear use cases for blockchain technology in asset management, but just as with payments, a distinction needs to be made between processes that are already very efficient and processes that need improvement. Within the asset management industry trading in publicly listed companies works very efficiently and fast with the current technology. The post-trade process and private company trading are totally different though. The post-trade process currently takes about two days to complete. Distributed ledger technology enables a large efficiency gain in the after-trade process. We argue it makes little sense to go after actual trading process innovations at this point in time. “
