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July 27, 2017

Blockchain to become the new plumbing of finance, says UBS

We can expect to see real use cases of blockchain emerging in the next eighteen months to two years.

By Tom Ball

Blockchain is currently besieged by hype, with eager followers pressing their ears to the pulse of progress surrounding the potentially revolutionary technology, never mind disruptive.

Consortiums are in place comprised by behemoths such as Accenture, Microsoft, and IBM. While the most prestigious financial institutions are working feverishly to develop the technology and locate how and where it can be implemented.

Amid all of the excitement it is easy to believe the new technology will imminently become ubiquitous, immediately changing the face of industry as we know it. We learnt from experts at UBS that this is not quite the case, but real use cases are just around the corner.


Blockchain set to become the new plumbing of finance

Hyder Jaffrey, Head of Strategic Investments and Innovation, UBS Investment Bank said: “We look at it on a timeline basis, what we are absolutely certain about is that we will start to see some fairly meaty use cases going live in the next eighteen months to two years, now they won’t be wide reaching, but they will be live, they will be ingrained in business streams that we perform today.”

Use cases for blockchain have emerged across the full spectrum of industries, for example, IBM are working with the global shipping firm Maersk, with the intention of streamlining the process that is currently far from paperless, and is plagued by human error and other inefficiencies. Financial services have perhaps theorised the most actionable blockchain use cases, these for example include smart insurance policies.

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“Amongst others, we are working on use cases in FX, specifically in the post-trade space.  You have  to get into the detail of each project, in terms of the required footprint of the ledger for go-live, for example with some of these cases you may start with an off-ledger feature function, coupled with a ledger, and over time you move off-ledger function on to the ledger itself”, said Jaffrey.

For such potential revolutionary change to take place, a gradual, phase-by-phase approach must be taken before blockchain can be fully implemented within finance.

“So you are scaling the introduction of a ledger, as opposed to it being a one-off switch over to running an entire function on it, we are in a transitional mode here, you cannot just switch off the financial markets and switch them on the next day with a new technology, it’s all about transition,” said Jaffrey.

Despite quenching the flames of the blockchain hype to some extent, the UBS professionals were evidently optimistic about what could soon be achieved on the back of this innovation.

“If you think about the plumbing within the financial institution or the financial markets, the blockchain with smart contracts, I think those two terms should be directly linked.

“If you think about the current plumbing within a financial institution or the financial markets, with blockchain and Smart contracts we have an opportunity to build new form of piping for the institutional financial markets.  There are different blockchain flavours coming through, each with  different dynamics, and different architectures.

“Nevertheless, I think the benefits that are being described; the efficiency gains, the cost benefits, the ability to take out risk dynamics, these are all huge for the market place, so regardless of the nuances of the technology that comes into play, I think we will see blockchains go-live,” said Hyder.


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Mr Jaffrey summed up what we can expect in terms of blockchain in the short term, with a realistic outlook on the technology’s future, he said:

“I think the whole discussion around blockchain can be seen on a time spectrum, to reach a point of ubiquity, so ‘it is everywhere and no one thinks about it anymore’, that is probably on the ten year horizon, it is quite a long way out, so nobody sees this as a short game.

“For the immediate, there are already live blockchain applications in Capital Markets, for example NASDAQ private markets.  Determining where an application fits on that time spectrum is a factor of how much third party involvement is needed to get something live, how many regulatory touchpoints a particular use case needs to go live, and the wider network effect required for traction. The scale of deployment required is directly proportional to the time required to go-live.


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