As blockchain emerges from the shadows of Bitcoin, experts are heralding it as the ‘mother technology’, which has catalyzed the massive global FinTech revolution, however, there still persists a need for the industry to understand the myriad of factors that are necessary to make this technology feasible.
The foundation of any financial institution or technology is based on the modicum of trust. While blockchain is being tried and tested by numerous banks globally, albeit in a variety of sandbox models and initial pilots, it is vital for the technology to have multiple players and early adopters on board, who are mutually trustworthy, to make this invention a success.
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“To make Blockchain viable for the Enterprise, we will need a more peer to peer consensus, where a network of computers, based on complex algorithms, will speak to each other instead of a central bank repository”
Overseas Infrastructure Alliance
The industry seems to be excited about blockchain technology but needs to understand that it will need a lot more P2P consensus to make it feasible. The widespread acceptance of this disruptor has already been proved, with a vast majority of banks (both global and domestic) adopting pilot initiatives to understand the effectiveness that this technology brings to the table while focusing on transparency and transaction speed. Trade finance, clearing and settlement, and loan syndication are most primed for wide adoption of the blockchain, a constantly updated ledger which is reliable and cannot be altered or fudged. Every player is a block, and the authenticity of the documentation, which is irreversible and traceable, can virtually turn the financial sector into a self-governed public trust system that has absolute accountability and total transparency. With blockchain comes the added advantage of a robust system with a different maker and checker, leading to multiple opportunities and intrinsic checks and balances for early stage fraud detection and mitigation.
- Organizing- Building one block at time: While going for technological and transactional clarity, organizations will have to accept uncertainty and be nimble footed with a long term vision aligned with short term objectives. Given the complexity, encryption and distributed nature of the blockchain, transactions undertaken by this technology could take a while to process. Blockchain is essentially a ‘program’ that is continuously tweaked, thus augmenting complexity. While developing the blockchain strategy, organizations would need to understand that the actual results may not be in tandem with their expectations.
- Educating Stakeholders: The banks and the service providers may have to rethink their business models, change the approach to stakeholder engagement and manage substantial mind-set conversion to collaborate externally. In other words, the technology will only work if everyone is willing to adopt it. As banks are experimenting with blockchain based multi-nodal system to digitize vendors financing fully for its clients, it is necessary to empower and educate these clients to imbibe the technology. Without the proper ecosystem, the banking sector will not be able to cash in on the full potential of the technology, which is dependent on every player it is interlinking.
- Common computing Infrastructure: As the banking sector is fairly excited about the technology providing speed to transactions and helping in checking the authenticity of clients and deals, it will need to take specific steps to create and endorse the common computing infrastructure which should necessarily define rights, obligations, controls and standards. Cross-functional and cross-industry collaboration will be the key to build the nodes of the blockchain.
Conclusion: Redesigning processes and learning, while implementing blockchain, will be the two most important steps in making the technology successful. As governance issues are handled by consortiums, individual efforts should continue seamlessly to showcase the business use case of the technology. Design and innovation-led management decisions should leverage blockchain in the same way banks implemented FinTech, data analytics, predictive learning and artificial intelligence. The blocks of change are here to stay, and the banks of the future need to embrace the technology and should be agile, to be sustainable.