By Oliver Bussmann and Nick Williamson
In September we – Oliver and Nick – published a joint blog post on why we didn’t think blockchain would be disrupting banks first. This caught some by surprise, since not only does blockchain seem predestined to disrupt financial services, but every day seems to bring new developments in this space.
On December 1 we had a chance to clarify our position at the Credits Blockchain and Bourbon fireside chat, where some 80 guests joined us at Level39 to quaff and question us about our views on the future of this tech – as well as share theirs.
We found the event interesting on two counts. One, it gave us a chance to clarify where we think blockchain is going in the immediate future. Second, it was a good sounding board for discussions on some of the larger blockchain trends we think will be of interest during the coming year.
First, to our “predictions”.
- From proof to pilot. 2017 will be the “year of the pilot” for blockchain in financial services, as it moves from a proof-of-concept technology into production, especially in the cross-border payment and trade finance areas.
- From slow to fast. This will move more quickly than expected, and we could reach a “tipping point” over the next 12 months if enough players with enough financial capacity come together, as seems to be the case in several areas at present.
- A better experience. Players have to prepare for the implementation of the revised EU payment services directive PSD2 in 2018. With the creation of open banking platforms, there will be opportunities for FinTechs to partner with banks to create more exciting customer experiences.
- Fending off the attack. Cyber-attacks on organizations are on the rise, with denial of service becoming much more threatening and dangerous for banks. 2017 will be a year to strengthen defenses.
- Banks still lagging. Financial services blockchain implementation will apply to the “low hanging fruit.” We stick with our main thesis that broad-based adoption of blockchains will happen more quickly outside of financial services – in areas like supply chain management, in e-government, or health care.
Besides putting ourselves out on a limb with our concrete predictions for the coming year, we had a chance to discuss some longer-term trends and issues with our guests. Here are a few things we think worth keeping an eye on.
- Breakthrough constellation. Technological breakthroughs usually happen at that moment when the five or six technologies needed to make a real change become cost-effective and convenient to use. With advances in secure hardware (IoT and smartphones) coupled with the improved algorithms in blockchains, we think the constellation is coming together for Distributed Ledger Technologies (DLT).
- Race for innovation. In financial services we will see a ramping up of the already intense race between jurisdictions to push FinTech innovation, driven by regulators.
- Setting the standard. We may see significant progress in blockchain standards during the year. If so, it will be driven by small groups working on specific use cases as opposed to large, complex consortia. We believe that attempts to establish standards before real-world, full-scale applications take off are likely to fail, and that it is always better to derive standards from successful implementations as opposed to the predictions of standards bodies.
- DLT-enabled financial use cases resemble many of the broader FinTech use cases in that they enable the unbundling of previously combined functions. As FinTech unbundles specific services such as retail FX exchange, we can expect DLTs to be used to unbundle the on-boarding and trust relationships from the end execution in a wide number of sectors.
One final thought. During the Q&A after our talk the broader societal implications of distributed ledgers was raised several times. The issues, while hardly new, can be thorny. Blockchains, for instance, are sure to intensify discussions about the balance between privacy and security.
We make no predictions here. But if we do start to see large-scale implementations of blockchains during the year, we wonder if these and other broader societal discussions might become more pronounced in government circles and potentially among the general public.
We would certainly welcome that. From the Silk Road to the DAO, DLTs suffer from bad press. As well as being a year of maturation for this technology, it could also be the year we begin to make a better case for it.
That would make for a good year indeed.