Business Blockchain
This week I attended the Business Blockchain panel breakfast, hosted by OMERS ventures and the OneEleven accelerator - this posting is about my impressions of the event and the few conversations I had with the participants. This breakfast with in lieu of the Business Blockchain conference by William Mougayar, that was cancelled and merged with the Consensus 2016 conference.
First and foremost, there is genuine enthusiasm about the technology and its potential to change the business. The level of energy among the panelists was so much higher than, for example, the last "private equity portfolio management" seminar I attended, where the participants were just droning over slides.
One of the most disputed topics was on the optimal path for the blockchain technology success - to disrupt or to collaborate? To disrupt means to develop a killer app that supplants the status quo in finance or in any other application area. To collaborate means to solve the specific industry problems, and thus to help the existing companies survive in the future. Simply put this is a difference between amazon.com and barnesandnoble.com - you judge which one is more successful, but barnesandnoble.com still sells books, while Amazon now sells everything.
On the collaboration side, the banks have created a network called R3 as a pilot to use blockchain for transaction settlements. At the time of writing, the consortium includes the magic number of 42 banks and it has trialed a blockchain to settle the debt transactions. After having worked at one of these banks, I know that settlements is one of the biggest headaches in the loan business. Settlements for trading leveraged loans, for example, involve manually faxing the contracts, entering the trades in spreadsheets, manually wiring money, and recording it all on an ancient mainframe database. If the banks manage to keep control of the settlements while massively automating the back-office / middle-office / front-office pipeline, the profits will be guaranteed. This can be achieved by reducing the headcount in the settlements departments and retiring old, expensive and slow technology. Wrinkles such as PIK (pay-in-kind) and amortizing loans will be as easy to deal with as a piece of cake.
Banks are also wondering whether it is possible to use blockchain for the KYC or AML purposes. KYC means Know Your Customer - it is a legal requirement for banks and it is the opposite of anonymous Swiss bank accounts. At this time, KYC is the business of the client-facing desks in banks, which in turn are audited, and a private blockchain / permissioned ledger can result in significant cost savings.
AML means anti-money-laundering, and it refers to the procedures that the banks run to make sure the transactions have legit origins and destinations, and do not involve activities that could be considered illegal in any country where they take place. A specifically designed blockchain can assure the trace-ability of transactions, again saving a large amount of manual work.
To summarize, many functions in banks are long due for an overhaul and the blockchain is a possible solution. More efficient inter-bank operations can be beneficial to all, since the costs will go down.
But why optimize old stuff when you can just build new, and eliminate banks as a whole in some parts of the trading business? Why not trade stocks on a peer-to-peer system like a public blockchain? Why not have the "buy-side" organizations and individuals trade directly between each other, saving on transaction costs and other fees charged by brokerages? This could be the wave of the future - a digital version of the old open outcry system.
There are also several projects in the healthcare sector. Thierion is developing a project with Philips for a proof-of-completion of a medical procedure, and GuardTime has a system to automate insurance documentation for medical procedures. Healthcare is definitely due for an information technology overhaul so whoever cracks the sector, is going to make a lot of money!
Next up - the Consensus 2016 Hackathon.
First and foremost, there is genuine enthusiasm about the technology and its potential to change the business. The level of energy among the panelists was so much higher than, for example, the last "private equity portfolio management" seminar I attended, where the participants were just droning over slides.One of the most disputed topics was on the optimal path for the blockchain technology success - to disrupt or to collaborate? To disrupt means to develop a killer app that supplants the status quo in finance or in any other application area. To collaborate means to solve the specific industry problems, and thus to help the existing companies survive in the future. Simply put this is a difference between amazon.com and barnesandnoble.com - you judge which one is more successful, but barnesandnoble.com still sells books, while Amazon now sells everything.
On the collaboration side, the banks have created a network called R3 as a pilot to use blockchain for transaction settlements. At the time of writing, the consortium includes the magic number of 42 banks and it has trialed a blockchain to settle the debt transactions. After having worked at one of these banks, I know that settlements is one of the biggest headaches in the loan business. Settlements for trading leveraged loans, for example, involve manually faxing the contracts, entering the trades in spreadsheets, manually wiring money, and recording it all on an ancient mainframe database. If the banks manage to keep control of the settlements while massively automating the back-office / middle-office / front-office pipeline, the profits will be guaranteed. This can be achieved by reducing the headcount in the settlements departments and retiring old, expensive and slow technology. Wrinkles such as PIK (pay-in-kind) and amortizing loans will be as easy to deal with as a piece of cake.
Banks are also wondering whether it is possible to use blockchain for the KYC or AML purposes. KYC means Know Your Customer - it is a legal requirement for banks and it is the opposite of anonymous Swiss bank accounts. At this time, KYC is the business of the client-facing desks in banks, which in turn are audited, and a private blockchain / permissioned ledger can result in significant cost savings.
AML means anti-money-laundering, and it refers to the procedures that the banks run to make sure the transactions have legit origins and destinations, and do not involve activities that could be considered illegal in any country where they take place. A specifically designed blockchain can assure the trace-ability of transactions, again saving a large amount of manual work.
To summarize, many functions in banks are long due for an overhaul and the blockchain is a possible solution. More efficient inter-bank operations can be beneficial to all, since the costs will go down.
But why optimize old stuff when you can just build new, and eliminate banks as a whole in some parts of the trading business? Why not trade stocks on a peer-to-peer system like a public blockchain? Why not have the "buy-side" organizations and individuals trade directly between each other, saving on transaction costs and other fees charged by brokerages? This could be the wave of the future - a digital version of the old open outcry system.
There are also several projects in the healthcare sector. Thierion is developing a project with Philips for a proof-of-completion of a medical procedure, and GuardTime has a system to automate insurance documentation for medical procedures. Healthcare is definitely due for an information technology overhaul so whoever cracks the sector, is going to make a lot of money!
Next up - the Consensus 2016 Hackathon.
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