Blockchain for branding, as banks see little benefits – WEF reports


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Is it a Golden bullet? or just a jewel? When I used to be a developer in banks, I used to get this question all the time – “do we have a golden bullet (tech) that can solve all our problems?”. The question used to be from very senior people in the bank – mostly. People who understand technology and banks well know that there are no golden bullets.

A few years ago, I was working on the business case for Blockchain for the PwC’s Financial Services leadership. It was to convince them that the technology had legs within the FS world, and we should build a practice to go after that market.

It’s been five years since then, and I must confess, that the progress we have seen in FS-Blockchain space has been disappointing. That is not to say that the technology doesn’t have a place in FS.

A report from the World Economic Forum offers a gloomy outlook. The report is titled “How to Evaluate Blockchain’s benefits”. It was based on survey across 79 Blockchain projects in 13 industries. The survey revealed that the RoI on Blockchain projects were projected to be 24% but only achieved 10%.

There have been four core reasons in my opinion for the slump in Blockchain activities from Banks.

  • Technology limitations: Scale, security and decentralisation are the three sides to the architectural trilemma that Blockchain solutions have to deal with. With the kind of throughput that financial transactions need, decentralisation has been compromised in many cases.
  • Blockchain Business Models: Blockchain requires a mindset shift, cultural shift, and a more collaborative business model in a banking scenario. While banks like J.P.Morgan (JPMCoin) have been more aggressive, this seems to be more of a corporate settlements play. Verdict is still out there on whether they will get other banks to be part of their Blockchain.
  • Legacy processes and systems: The curse of legacy has killed several Banking Blockchain projects. One recent one is SWIFT’s attempt to use Blockchain for their GPI (Global Payments Initiative) capability. The pilot failed due to legacy banking processes and systems not able to cope with Blockchain’s requirements. They are more recently exploring options with R3’s Corda.
  • Community/Ecosystem: Blockchain requires a community to look after the integrity of activities on the network. Banks will need to build a ecosystem of peers, consumers or corporate clients – depending on the use case. This is by no means an easy task.

The above reasons make Blockchain a long term strategic solution, rather than a short term quick fix. But banks have been pretty bad at executing long term transformation/innovation projects. When the cost of holding on to the technology reduces the ROI,  Blockchain projects invariably get killed.

The cost of executing a Blockchain project successfully, would be affected by the pace at which the bank is able to build a community. That is something that’s against their DNA too. With Fintech, banks have been forced to get better at technology to compete. With Blockchain, they have another ask – a tougher one – community building.

Developing tech, and building a community to make it work is what tech firms do. Even tech firms fail at community building often. However, banks can still take an approach of getting their corporate clients onboard – much like JP Morgan. If that goes through successfully, then they could start slowly opening up the network to competition and perhaps consumers.

The other stat that the WEF report covered is that over 42% of respondents expected improvement with their brand once their Blockchain project is announced. The buzz around Blockchain has clearly backfired and puts a lot more pressure on these corporate initiatives. The golden bullet is now a jewel!

It is going to take a lot more soul searching, business model experimentation, business process re-engineering, time and capital to get the “Banking-Blockchain” marriage right. Whether the RoI would justify the efforts involved is anyone’s guess at this stage. Blockchain pushes banks into proper startup territory. They may very well crack the challenge, or go down trying!

Arunkumar Krishnakumar is a Venture Capital investor at Green Shores Capital focusing on Inclusion and a podcast host.

I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

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