Changing Blockchain Talk to Action: Two Steps the Financial Industry Can Take

Blockchain is anything but business as usual for the financial industry. Decision-makers at traditional banks and other financial service providers, along with every organization in their orbit, are well-aware of the considerable shifts blockchain portends.

However, exposing sensitive business information in a trusted distributed ledger is easier said than done. So far within financial circles, there’s more talk than action.

“Innovative banks and other financial institutions have been exploring use cases, but as soon as they get closer to actual usage, many tend to back away because in part, they aren’t ready to share data,” said Nadine Hoffmann, Innovation Manager for Financial Services at SAP. “This transformation won’t happen overnight, but financial service providers are the front-runners when it comes to proving the business case for blockchain, and leading the required cultural change.”

To take full advantage of the incredible business process changes that blockchain promises, the financial industry needs to do two things: help shape the conversation as rules evolve, and rethink deeply ingrained business mores. According to Hoffmann, this is the only way any financial player will be a trusted partner in the digitalized environment.

Step 1: Influence the New Rules

The financial industry has long used distributed ledger technology to upload and store data. Process transformation will happen when governing bodies decide how to regulate blockchain.

“Regulators are examining how mandates could be made more flexible to move industries into a future that includes blockchain-enabled transactions,” said Hoffmann. “Financial service providers need to work with regulators to take the first small steps toward regulation as blockchain emerges, influencing these discussions that impact the movement of money, including judicial oversight, the definition and legal usage of crypto-currency, and other issues. The industry must move faster. Many institutions are just getting comfortable with cloud-based computing, but blockchain is waiting in the wings, and will deliver even greater disruption.”

Step 2: Prepare for Culture Shock

Survival in the financial industry demands a scary level of openness for many established institutions. Emboldened by the fintech threat, some of the more innovative banks are already collaborating with corporate customers to form cross-industry private blockchains for business transactions in the secure, distributed ledger.

“Organizations cannot stay within the boundaries of their respective industries if they want to emerge victorious in a blockchain-enabled world,” said Hoffmann. “Building an apartment complex is a good example, where all the processes and information between the bank, insurance company, construction firm, realtor, and consumers can be on the chain. Blockchain, coupled with digital twin technology, eliminates the time-consuming, complex, expensive paper processes of exchanging information and waiting for approvals because everyone involved in the transaction shares the same traceable, tamper-proof data.”

#Blockchain demands scary levels of openness for banks, but promises a wealth of growth opportunities

Rethinking the Role of Financial Providers

Blockchain has the potential to upend the role of financial service providers like no other technology. If it works as promised, blockchain will mean that banks or similar institutions no longer solely enjoy the coveted role of trusted party. Anyone with a digital key to the chain gains that trusted status. However, financial service providers could gain competitive advantage by unleashing other distinguishing services.

“Current regulations give banks sole license to lend and move certain amounts of money meaning we still need these institutions as we know them today,” said Hoffmann. “But as blockchain surfaces, banks will need to develop new services they could offer on the chain. For example, instead of just providing a loan to a building contractor, banks using blockchain have visibility across the entire business exchange, and can automatically manage payments for adjusted risk as construction moves forward and units are rented.”

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