Blockchain in financial services

From PwC's Financial Services Institute

Blockchain is one of the more exciting—and more misunderstood—emerging technologies. It essentially offers a decentralized ledger of all transactions across a network: When a transaction occurs, everyone on the network knows about it. It’s tamper-proof and virtually instantaneous. This has real disruptive implications for the financial industry, which today uses other processes to keep records for asset transfers and more.

A look back

Beyond bitcoin. In 2015, if we asked people about blockchain, most would answer, “Isn’t that related to bitcoin?” Blockchain is the technology behind bitcoin, but it can do so much more, and this is now becoming clear.

Meanwhile, in the lab... In 2016, nearly every major financial institution was experimenting with blockchain. Many firms have started by working with in-house innovation groups to develop proof-of-concept (PoC) projects. They’ve been doing this by themselves and in partnership with others. One consortium claims more than 70 financial institutions.

It’s not just financial institutions. Governments and other central authorities are getting involved. In 2016, for example, we helped one central bank develop a PoC using distributed ledger technology to settle payments. Major stock exchanges have launched initiatives to test the technology with nontraditional asset trading. Clearing houses have their own projects, too.

Betting on blockchain. We follow 158 blockchain-specific companies in 24 industry subsectors on our DeNovo strategy platform. This shows the wide-ranging and flexible nature of the technology.

How blockchain works - PwC

The road ahead

Real-world applications. There are lots of promising blockchain applications across financial services. For example, we’ve estimated that blockchain could create the opportunity to save between US$5 billion and $10 billion in reinsurance. This is possible because of improvements to placement, claims settlement, and compliance checks. We’re also seeing interesting activity in areas like clearing and settlement, trade finance, and mortgages. In the coming year, many firms hope to move from PoC to production to demonstrate immediate value. But to do this, they’ll have to move beyond seemingly endless debates about how to untangle complex, legacy infrastructure.

Now, the hard part. After making some fairly big bets on the technology, firms should think more broadly about how to put it to work. Behind the scenes, there are technical issues being addressed: resolving communications and programming issues, data privacy and security concerns, regulatory concerns, standardizing the communications protocol, and so on. But for financial institutions, many of the most challenging issues aren’t technical at all. Rather, they’ll struggle to address items such as governance, standards, and “off-ramps” to other systems.

What to consider

Get going. There are many factors that ultimately drive whether or not a technology is widely adopted. Having a better tool doesn’t always drive the decision, as we’ve seen again and again. And time can be a limiting factor. Once skepticism takes hold, it can be hard to overcome. To succeed, you should quickly decide which PoCs should be promoted to production. Again, this depends on more than just the technology itself. You should address the nontechnical components of a blockchain solution such as designing the future state operating model (including organizational design), business process management, and governance.

Think out of the box. Literally. One sign that a technology has matured is the emergence of vendors offering packaged solutions. It’s increasingly possible for you to jumpstart deployment by using “Blockchain-as-a-Service” offerings. These are hosted services that include all aspects of the distributed ledger technology in a third party cloud environment.

“Even firms working independently are building capabilities that they’ll use to improve interactions with others. We see a lot of nontraditional collaboration happening, too. With blockchain, it all comes down to better communication among institutions.”

Grainne McNamara Principal, Financial Services

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PwC on 2017, blockchain, and what firms should do going forward

PwC's John Garvey discusses if 2017 will be the year of blockchain and how institutions should develop it going forward. All new technologies take significant development and capital outline, and blockchain is no exception. Financial institutions have specific things they can do in 2017 to avoid getting left behind.

How PwC can help

Our teams in asset and wealth managementbanking and capital markets, and insurance are helping our clients tackle the biggest issues facing the financial services industry. With professionals across tax, assurance, and advisory practices, we can help you find ways to thrive even in a period of uncertainty. Whether you're preparing for regulatory changes, putting FinTech/InsurTech to work, or rethinking your human capital strategy, we work together with you to deliver value to your business.

For more information on how PwC can help with blockchain, reach out to one of our leaders below or explore our blockchain services.

Contact us

Grainne McNamara
Principal, Digital
Tel: +1 (646) 471 5347

Kevin Kroen
Partner, FS Advisory, Digital Labor/RPA Leader
Tel: +1 (646) 471 0238

Marie Carr
Global Growth Strategy, US Financial Services Practice
Tel: +1 (312) 298 6823

Cathryn Marsh
Leader, Financial Services Institute
Tel: +1 (720) 931 7836

A. Michael Smith
Internal Technology Audit Services Leader – Financial Services
Tel: +1 (646) 471 9580

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