Blockchain Adoption – A Challenge for Financial Services

By: Bhooma Chutani, Dy. Head Lead ​Consultant, Enterprise Consulting

Blockchain, or the Distributed Ledger Technology (DLT) as it is now called, is fast disrupting the way we do business. While there are several use cases of the technology in other industries, Financial Services is on the forefront of adoption. The majority of global Banks and FIs are already experimenting with DLT, especially in the areas of payments, post-trade settlement, trade finance and reference data.

While DLT has several benefits, I foresee many challenges in large-scale adoption. The major challenge stems from the sheer number of players that need to be onboarded for a full-scale implementation. Financial institutions, FinTechs, and Regulators will have to work in tandem to develop and adopt a solution that works in everyone’s favor.

The technology itself is still evolving and industry-wide standards are yet to be established. There are concerns around scalability, robustness and security. The recent hack on the DAO (Decentralized Autonomous Organization), which led to multi-million dollar losses, has served to highlight the need for a more robust and hack-proof solution. The stakes are too high in Financial Services to learn from our mistakes.

While several consortia like the Hyperledger foundation, the R3 consortium and the LSE’s Post Trade Ledger Group, are trying to bring key players together, the inter-operability of these platforms and solutions still remains a challenge. The Regulators are also waking up to the potential of DLT in transforming financial processes, but there is a long way to go before the right regulations can be formulated. The technology and the use cases are evolving so fast that it is too soon to build an all-encompassing multi-country regulatory framework.

Solutions built on DLT will also need to integrate with the existing backend legacy systems, and in some cases even replace parts of the core banking system. That integration is a mammoth task that Banks may not have an appetite for.

Ultimately for a large-scale adoption in financial services, all the affected parties will have to work collaboratively, and I don’t see that happening in the next 2-3 years.

What’s your take?

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