Block chain is a technology for storing and transmitting peer-to-peer information based on distributed databases.

A distributed database is a given database managed by a set of computers within a network, without requiring a central authority. Each member of the network stores a copy (complete or not) of the database. These copies are synchronized regularly to ensure that all the data added to one copy of the database is passed on to all the other copies.

Block chain operating rules are defined, known, and applied by all members of the network. Any change in the Block chain basic operation must be validated by the majority of its members.

All transactions made by a user on a Block chain are visible to all users of this Block chain.

Block chain transactions are secure thanks to a cryptography system based on the use of asymmetric public and private keys to certify.

The Block chain consists of blocks of successive transactions which are directly linked to each other. Thus, no modification or deletion of a previous transaction or block is possible without altering the validity of the entire block chain.

Block chain is a complex and still immature set of technologies on the market. Their adoption in particular by Financial institutions, is very heterogeneous. The perceived potential has generated a very large number of initiatives in recent times, but few are currently in production since they face technical, technological, regulatory or partnership limits.

Well identified opportunities but also doubts are raised;

The current development of initiatives and the limits encountered suggest a slow transformation of the operational model of Financial institutions towards Block chain, which is in line with the transformations already known by the banking sector in recent years, with in particular the Robotic Process Automation (RPA) and Artificial Intelligence (AI).

The dynamics between Fin-tech firms and the Finance industry is now moving away from competition to seek common innovation and close working together, for the benefit of the customer. The common objective is to be a front player in innovating, making the difference in the customer experience, offering faster, new, easy to use, more secure and less costly services.

Opportunities and limits of Blockchain in the Finance industry can be summarized as followed.

Governance and capacity to mobilize the ecosystem

The establishment of a Block chain requires embarking an entire ecosystem of actors in a project and being able to find suitable consensus for all parties. It also raises the question of the responsibility of the Block chain infrastructure in the event of problems encountered.

Synchronization with regulations

The carrying out of certain operations via the Block chain must be authorized by the regulators, without which the projects carried out cannot succeed. In addition, these projects must take into account the regulatory constraints related to the General Data Protection Regulation and the right to be forgotten by adapting the nature of the data to be recorded on the Block chain (for example by using anonymized data), which can greatly limit the interest in certain identified use cases.

Profitability of Block chain infrastructures

The ROI of Block chain initiatives is still difficult to measure due to the lack of maturity of its applications and the investment represented to adapt the Information Systems to incorporate this technology.

Ability to appropriate technology

Block chain resources and skills are still quite scarce on the market. Financial institutions  therefore do not have many resources to develop their knowledge internally, and the ecosystem of partners and external suppliers is still very unstable and in full development.

Continued digitization of banking operations

By dematerializing documents, assets or currencies on the Block chain, to facilitate their sharing.

Business Process as a Service (BPaaS)

The then already appearing old fashion Business Process Outsourcing (BPO) will be relayed by BPaaS, allowing to (re)-insource the full control of operations but leveraging of Cloud based Block chain secured Services. This application of Block chain could become the Financial institution’s main leverage to adopt Block chain.

Provision of new means to fight against fraud

By verifying the authenticity of documents on the Block chain.

Reduction of operational costs and transaction times

By automating operations, simplifying controls and eliminating certain intermediaries.

Traceability and security of banking operations

By recording all the operations carried out and guaranteeing the integrity of their history.

To conclude;

Block chain technology with all its capabilities will optimize certain financial activities. Many Block chain initiatives are currently underway within the Finance industry.

Block chain evolution and adoption will be influenced by the position of regulators and should lead to a gradual and seamless transformation.

The Financial industries businesses will have to adapt to a new ecosystem when adopting Block chain technology.

The operational departments will have to offer employees support that will focus on the evolution of business processes and mastery of new work tools.

Michael Lemke

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