Since its first implementation in 2009, we have seen Bitcoin adoption spread across different countries and become a serious competitor to traditional financial transactions methods, creating new business opportunities for both corporations and governments.
As a tech savvy country and one of the earlier adopters of bitcoin and other e-currencies, Australia has seen considerable interest in blockchain technology that underpins bitcoin and other crypto-currencies. Just in the past few months, we have seen an Australian start-up claiming to have created the first local blockchain, and Australia Post has begun looking into the use of blockchain technology in the areas of identity, registries and e-voting. And a few days ago, Commonwealth Bank used blockchain as a world first global transaction, in collaboration with Wells Fargo.
Although it is still a relatively new technology and inevitably raises early adoption concerns, financial services organisations in Australia should be investigating the potential of blockchain technology to various aspects of their business.
Here are five steps financial institutions should consider when investigating the potential of blockchain:
1. Build a team to understand the applications and implications of blockchain
Blockchain is a data structure enabling the creation of a digital ledger of transactions, shareable among a distributed network of computers. By using cryptography, blockchain allows each participant on the network to manipulate the ledger in a secure way, without the need for a central authority. At a time when companies face new challenges in data management and security, blockchain has emerged as a way to securely and instantly verify transactions on a network.
The technology underlying cryptocurrency is building undeniable momentum, with the potential for significant impact on financial services, business and society at large. Quickly gaining a reputation as the “Internet of finance”, blockchain provides the digital ledger that enables Bitcoin, BitShares, Ethereum, Ripple and hundreds of their crypto-currencies to transfer assets quickly, reliably and securely.
Getting banks and insurance providers to share blockchain’s potential within their organisation can uncover new approaches, use cases, and ways to transform the way they do business and work internally. The first step begins with identifying and involving a core set of evangelists and seeding them within the business so they can evaluate each project to assess the relevance of blockchain and other innovative technologies.
2. Understand the impact of blockchain on processes and investments
When building awareness of blockchain within a financial services institution, it is important to acknowledge the opportunities, but also potential risks and limitations of this innovative technology. It is essential to take a holistic approach and consider possible impacts to business processes and stakeholders.
This means, for example, learning about how smart contracts (based on blockchain technology) can open the door to digital asset transfers and eliminating potential for inconsistency between systems by reducing ‘handoffs’ between various systems of record. As well as improving business processes, blockchain has the potential to significantly reduce IT investments.
3. Explore blockchain’s potential internally
Exploring the potential for blockchain technology primarily means searching for ways to incorporate blockchain into the enterprise, including the business and technology process changes needed to realise value from each use of blockchain. Financial services organisations don’t need to wait for inter-operability with the outside world to reap blockchain rewards such as streamlining costly internal processes.
4. Find a pain point and work it
A good way to build awareness and interest around blockchain is to identify a problem that provides hands-on experience with the technology. This “hedge” investment can be a lever for spreading the word about blockchain to a broader audience internally, without spending millions of dollars.
Perform a small proof of concept (PoC) using available solution accelerators and establish a point of view on particular business process areas that blockchain could improve. PoCs provide necessary hands-on experience to business and technology teams, providing new ideas for how business processes can be improved using blockchain.
A PoC provides a relatively safe internal setting to succeed or fail fast and reap quick learning benefits. The lessons from an internal PoC should allow your teams to identify precise business requirements before expanding the reach of this technology to other business areas.
5. Consider working with partners or a consortium
For organisations already part of a consortium, or for those considering one, expectations should be defined very carefully. Typically, actively participating in a consortium will deliver significantly more value than simply adding an organisation’s brand to a list of names. To help teams prepare for the future, broader partner discussions are helpful, particularly as integration first begins.
By getting out in front on blockchain, early adopters will reap meaningful returns on their investments. Meanwhile, others will wait and see, hoping for greater clarity and, perhaps, consortium consensus. It doesn’t have to be an either/or situation, though. The blockchain journey starts by being open to it.
Carlo Lacota is Senior Vice President, Banking and Financial Services at Cognizant.