A report from the World Economic Forum (WEF) highlights the central place distributed ledger technology such as blockchain will occupy in the future of the financial services industry.
The report focused on the impact of implementing blockchain technology across nine sectors: trade finance, automated compliance, global payments and asset rehypothecation, proxy voting, equity-post trade, syndicated loans, property casualty claims processing and contingency convertible bonds.
The aim of the report is to complement existing distributed ledger technology research and provide a clear view on how financial services functions can interpret and integrate the new technology.
Amongst the experts, who contributed to the report are Todd McDonald and Jo Lang of R3, and David Puth and Tom Zschach of currency settlement system CLS.
Recently, R3, a leading consortium with over 55 of the world’s largest financial institutions, successfully completed two prototypes that demonstrate how distributed ledger technology can address the key challenges of trade finance. It found that distributed and shared ledger technology as a digital alternative for trade financing is significantly faster, more reliable and cost-effective.
Key findings of the report include:
- DLT has great potential to drive simplicity and efficiency through the establishment of new financial services infrastructure and processes
- Applications of DLT will differ by use case, each leveraging the technology in different ways for a diverse range of benefits
- The most impactful DLT applications will require deep collaboration between incumbents, innovators and regulators, adding complexity and delaying implementation
- DLT is not a panacea; instead it should be viewed as one of many technologies that will form the foundation of next- generation financial services infrastructure
- Digital Identity is a critical enabler to broaden applications to new verticals; Digital Fiat (legal tender), along with other emerging capabilities, has the ability to amplify benefits
- New financial services infrastructure built on DLT will redraw processes and call into question orthodoxies that are foundational to today’s business models.
The report stressed that blockchain technology has the potential to significantly improve the financial services ecosystem, with 80 percent of banks currently in the process of working on blockchain projects in collaboration with incumbents and regulators.