By Citisoft Managing Partner Steve Young
I get quite frustrated when I hear about Blockchain, or Distributed Ledger Technology (DLT) these days. When evaluating the technology behind the cryptocurrency Bitcoin, some observers are making predictions of wholesale changes to the industry and the emergence of point-to-point business chains, removing the need for the ‘middle men’ and intermediaries such as clearing houses and brokers. It seems that the same old grey-haired individuals, avidly trying to insert Blockchain into current operations, are making a large proportion of these claims.
In my opinion, if any financial services firm is going to genuinely disrupt anything, that firm has got to create a new business model. If all asset managers are going to do is create a new Blockchain layer within its operations or convert a current process into a Blockchain procedure, the benefits are going to be minimal; it is not going to change the world.
Significant benefits will be accrued when a newcomer at an asset management business considers technology from a completely fresh perspective. That individual, while looking at settlement or any part of investment management operations, will recognise the massive inefficiencies involved and set out on a mission to create a totally new business model for the firm.
Blockchain is not, and never will be, the answer in isolation. It is an enabler but requires the business idea to be clearly specified in order to bring benefit.
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There are several areas of the asset management industry where Blockchain is not an appropriate technology on which to build new business models and other areas that may be ripe for transformation through models based on DLT.
Currently there is too much noise and not enough clarity on this subject. Asset managers are investigating the ‘Blockchain potential’, which is in my view largely inappropriate. Firms should be looking to utilise technology to transform and improve their business – but this must be from a business viewpoint, not a technical stance.
I have no doubt that we will see DLT used to bring new products and processes to market. Some of these will succeed and some will fail – just like any other new product. Their success will be entirely based on the functional and business benefits that they can provide, irrespective of the underlying technology. I would also expect that most, if not all, of the winners will be brought to market by single commercial entities and not through any consortia or industry working group.
Blockchain will not succeed if it is in the hands of an executive with the blinkered vision of someone with vested interests, simply looking for a new way to reinvent the wheel. This just doesn’t seem like the right approach to me. The technology will follow the business idea; it will not lead the solution or process change.
Blockchain calls for free thinkers looking to transform businesses.