An ambitious group of trailblazers is leading the adoption of blockchain solutions in financial markets, and the firms involved are moving ahead at a much faster rate than anticipated. Those are key findings of an IBM report “Blockchain rewires financial markets.”
The Economist Intelligence Unit, on behalf of the IBM Institute for Business Value, surveyed 200 financial market institutions in 16 countries about their experiences with blockchains, which are reflected in the report.
It found that 14% of those surveyed expect to have blockchains in production at a commercial scale in 2017. These trailblazers may be small in number, but they are clearly ambitious.
So what is driving the adoption of this technology? Trailblazers expect blockchains to remove the frictions that hold companies back, limit their growth, and constrain innovation. In particular, they see blockchains helping them to overcome the challenges they face in these key areas:
- Imperfect information – decision-making impeded by inaccurate, misleading, or incomplete information
- Inaccessible information – shortage of information for standards reasons or due to a lack of scalable computing power and storage
- Invisible threats – the risk of new business-model disruptions or new competition that is difficult to predict
Given these advantages, trailblazers see blockchains delivering the most benefit in the following four areas.
Clearing and settlements
The attraction of blockchains in clearing and settlement is the immutability of data and transactions that the technology provides. While there are clearly regulatory and other issues to be resolved, the benefits are significant. The report notes that NASDAQ expects its blockchain initiative, Linq, could reduce settlement risk by more than 99%.
In the wholesale payments area, trailblazers value the opportunity to reduce the costs of these high-value but intensely manual transactions. In fact, they rated wholesale payments as the first area to benefit from cost savings.
Equity and debt issuance
In this area, trailblazers expect significant transparency and cost benefits to emerge as new blockchain-enabled trading platforms are established. In Japan, a consortium of 15 banks has turned to blockchains to enable a new payments initiative that includes round-the-clock settlement. The new service is expected to go live in the spring of 2017 and cut banks’ fees by 90%.
In the first three areas, trailblazers expect blockchains will open up new business models. However, while not necessarily transformational, the fourth area is equally important.
On blockchains, reference data is automatically captured, validated, and shared in real time. As such, the technology provides an ongoing, constantly up-to-date, self-integrating system of truth. And when blockchains are connected to data silos, benefits build up. Costly and time-consuming reconciliations are virtually eliminated, data integrity is assured, and institutions gain a superior platform for real-time analytics and reporting. As such, reference data is an attractive place to start blockchain initiatives, especially because the area is less burdened with regulatory complexity.
The report provides many concrete examples of how trailblazers are pressing ahead with blockchain solutions and makes it clear that the introduction of commercial applications is imminent. Truly, 2017 could well be the year of the blockchain in financial markets.
Read the full report “Blockchain rewires financial markets” from the IBM Institute for Business Value.