My Take on Blockchain in Modern Financial Services
As things stand, FinTech solves problems and addresses pain points through innovative models, however, it is still reliant on legacy banking infrastructure. Cryptocurrency and its underlying technology, blockchain, has the power to revolutionise that infrastructure and, in doing so, revolutionise financial services work.
Even though Bitcoin has been making the big headlines, the main use cases in financial services are more practical — to store data in blockchain-based distributed databases for better efficiency and transparency. For example, we’ve seen our FinTech clients at Erlang Solutions use blockchain, for storing financial operations logs and signature management. There are other uses too: for example, in lending blockchain can remove the need for centralised gatekeepers, making it more secure to borrow money and provide lower interest rates or in trade finance creating more transparency, security and trust among the trade parties.
There are many other use cases for the technology and some of these were discussed during our sponsored panel session as part of Fintech Week London recently — you can register to receive the video recording here.
So, how does the landscape look right now? Firstly, there is a substantial difference in how blockchain can be used by players in different segments of financial services. Established banks and technology firms are primarily focusing on the applications for digital identities and regulatory compliance, whereas ‘start-up operators’ are mostly engaged in activities related to capital markets. For banks blockchain’s power to reduce operational costs is the strongest business case while the current most relevant segment is that of payments. A decentralised ledger for payments can facilitate faster payments at lower fees, while clearance and settlement can get closer to real-time at reduced costs away from time-consuming and error-prone settlement processes.
Encouragingly for those working with blockchain, PoCs are being replaced with deployments to real production systems. While most use cases remain private and permissioned at this point, they are an encouraging indicator. The underlying technology of the network and protocol layers are now widely accepted as robust and stable allowing innovations to move to the application layer where the real value lies. As the higher stack application layer is more nascent, this is where using developers who are experienced becomes especially valuable to avoid wasting time and resources.
The last few years show blockchain technology stacks that can solve real problems in financial services. Ultimately, true advancements will emerge from the intersections of different disciplines. Interfaces of blockchain technologies with AI, ML and IoT need to be explored as we move to greater actual design and production engineering.
This article is an abstract of my full blog post which you can read on the Erlang Solutions website.
