Banks should forge their own blockchain path, expert says

Banks should forge their own blockchain path, expert says

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An increasing number blockchain start-ups will begin to build new banks if incumbent institutions are slow to move.

That’s the view of Jeffrey Billingham, who heads up Chain Gang, Markit’s group implementing distributed ledger technology.

Billingham, a vice president at Markit, which announced a ‘merger of equals’ with IHS last month, reckons only true “forward thinkers” will capture the opportunity on offer.

“The financial industry needs to understand blockhain’s potential to transform management of collateral and securitize a range of financial products,” he said in a recent note.

Stats show the financial industry has invested over $1bn in the last 14 months to support blockchain consortia, pilot programs, companies and other efforts to create consensus about implementing blockchain.

Yet a clear implementation strategy remains elusive.

Billingham says the partnership approach seen so far is “atypical” of how innovative technology enters a market.

“We would expect the industry to eschew consensus and exhibit bolder, unilateral moves in pursuit of competitive advantage,” he said.

“Moreover, if incumbent institutions were slow to move, we would expect blockchain startups to build new banks."

One blockchain start-up, ItBit, has already obtained a banking license.

Numerous banks, including Goldman Sachs, have backed Digital Asset Holdings, the blockchain specialist run by former J.P. Morgan executive Blythe Masters, 

Meanwhile, French bank BNP Paribas announced a deal this week to develop a blockchain share register with Paris-based crowdfunding platform SmartAngels.

But for now, neither of Billingham’s above points are happening in earnest.

“A cynic would say the focus on partnerships only shows that players are hedging their bets,” Billingham continues. “The eternal optimist would say that players need to partner to be successful.”

“If every bank, exchange, infrastructure provider and clearing house put their internal working groups in one room, all would agree to one point: blockchain technology is not a silver bullet for financial markets.

“However, beyond defining what the technology is not, few seem to agree on what the technology actually is."

Although he’s supportive of the collaborative approach, Billingham added that consensus building, however well-intentioned, often results in a focus “on the least common denominator”, dimming  understanding of the bigger picture.

"If blockchains are to play a revolutionary role in financial services, 2016 must be the year that firms agree to disagree about the role of blockchain, forge their own paths, and dare others to follow," the Markit vice president added. 

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