Peter Vanham, Public Engagement Department; Tel: +1 646 592 5907; Email: pvan@weforum.org
Blockchain technology will become the core of the global financial system
· A report by the World Economic Forum says that blockchain, the technology underpinning Bitcoin, could fundamentally change the way global banks operate, reducing their operating costs and improving the security and accessibility of financial services.
· The technology could lower costs for consumers and help strengthen regulators’ oversight capabilities and their ability to respond to financial bubbles. However, blockchain’s impact may be largely limited to banks’ back-office operations; moreover, major disruptive innovations such as Bitcoin are unlikely to change the industry.
· Competing financial institutions need to cooperate to overcome the upfront challenges associated with the technology and ensure that its full socioeconomic benefits are realized.
· To read the full report, click here
New York, USA, August 12, 2016 — The latest report published by the World Economic Forum, The Future of Financial Infrastructure, finds that blockchain technology will fundamentally change how global financial institutions operate. Its effects, however, will be subtle, arising primarily from new processes and architectures built on the technology rather than from abrupt fintech innovation or new currencies such as Bitcoin.
The report examines nine use cases for blockchain across six financial services functions—insurance, payments, market provisioning, investment management, fundraising, and lending and deposits—showing how the technology could transform processes in each area. It also analyzes the profound changes that could result from combining blockchain with other emerging technologies in the financial industry, such as biometrics, cloud computing, cognitive computing, machine learning, quantum computing, and robotics.
The report finds that some financial institutions’ processes could be replaced by blockchain, including the following basic activities:
· International payments and wire transfers, which currently require extensive manual work and incur high costs
· Rehypothecation, which contributed to the outbreak of the last global financial crisis
· Lengthy and inefficient compliance reporting processes that banks currently use to report to regulators
Blockchain could simplify banks’ back-office processes, reduce their costs, and improve security and accessibility. It could have a far-reaching impact in areas such as enabling financial institutions to create blockchain-based fiat currency for use between banks, simplifying today’s cumbersome transfer processes, as shown in the figure below. This process innovation could allow blockchain technology to enter the financial industry’s bloodstream.
“Blockchain will be at the core of the financial industry, not at its edges,” said Giancarlo Bruno, Head of Financial Services Industries at the World Economic Forum. “Blockchain will drive innovation in financial industry solutions and become increasingly integrated into the financial services architecture, just as mainframe computers, text messaging, and electronic trading did before it.”
Blockchain could therefore change financial institutions’ current architecture and back-office services. From international payments to stock and bond trading, it could reduce the costs consumers pay for various financial transactions. It could also give regulators new capabilities to prevent misconduct in advance and monitor more effectively the risk of a financial crisis.
However, Bob Contri, Deloitte’s Global Financial Services Industry Leader and a co-author of the report, believes that financial institutions must look beyond competition and work together to achieve these goals. “Before blockchain technology is fully adopted, several issues need to be addressed, including establishing a clear regulatory environment, standardizing practices, and creating a formal legal framework,” he said.
The report also stresses that, like all innovative technologies, blockchain entails a number of risks that cannot be ignored, including design errors, malicious autonomous behavior resulting from human decisions, and potential security vulnerabilities between inputs and outputs. These challenges must also be overcome if blockchain’s socioeconomic benefits are to be realized.
About the report: The report is the latest phase of the Forum’s ongoing Disruptive Innovation in Financial Services project. The Forum worked with more than 200 industry leaders and relevant experts, conducting interviews and multi-stakeholder workshops over more than 12 months of research.
Additional quotes:
“There is no doubt about blockchain’s transformative potential, but it is not a silver bullet for the inefficiencies in financial services. At this stage, the priority is to identify a direction. The technology will have the greatest impact when applied to business problems arising from shared information repositories, multiple data inputs, low trust, intermediaries, and the interdependence of different transactions. Without these conditions, blockchain may not solve the problem,” said Rob Galaski, a partner at Deloitte.
“Blockchain technology will fundamentally change the infrastructure of financial services. It will transform processes and prompt a reassessment of the policies underpinning today’s business models,” said Jesse McWaters, Head of the World Economic Forum’s Disruptive Innovation in Financial Services project. “Our research looks to the future of blockchain technology. We believe that opening a dialogue can encourage people to think about the trends that will shape blockchain’s future.”
Notes to editors:
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