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Over the past three years, the World Economic Forum (WEF) estimates that some US$ 1.4 billion have been invested into blockchain technology with companies having filled over 2,500 patents during that same period of time.
Over 90 corporations have joined blockchain consortia and 80% of #banks say they would initiate blockchain projects by 2017.
As blockchain has become a buzzword in the financial services industry, WEF has conducted a 12-month research to better understand the implication and potential of blockchain technology in the sector.
Blockchain technology has great potential to drive simplicity and efficiency through entirely new financial services infrastructure and processes.
For instance, it can reduce and even eliminate manual efforts required to perform reconciliation and resolve disputes. It can also enable real-time monitoring of financial activity between regulators and regulated entities, reduce counterparty risk, enable asset provenance and full transaction history, and disintermediate third parties that support transaction verification and validation thus accelerating settlement.
Distributed ledger technology should be viewed as one of the many technologies that will transform the foundation of next-generation financial services infrastructure. It should be seen as &8220;part of a toolbox&8221; that includes biometrics, cloud computing, cognitive computing, among other emerging technologies.
Blockchain technology can be used in many different areas with each use case leveraging the technology in different ways.
For instance, in trade finance, blockchain enables real-time multi-party tracking and management of letters of credit, as well as faster automated settlement. For global payments, it allows for near real-time point-to-point transfer of funds between financial institutions, removing friction and accelerating settlement. For automated compliance, blockchain technology provides faster and more accurate reporting.
Blockchain technology can be used for digital identity, &8220;a critical enabler to broaden applications to new verticals,&8221; as well as digital fiat currencies.
A fully digital system for storing and transferring identity attributes, when directly integrated into a distributed financial infrastructure, can provide faster and accurate anti-money laundering (AML) and know-your-client (KYC) processes, as well as seamless customer onboarding.
Distributed fiat currencies issued by central banks, when employed within a distributed financial infrastructure, can eliminate the need for an inefficient bridge between cash and a new financial infrastructure.
The most impactful blockchain applications will require collaboration between all key stakeholders in the financial services ecosystem, including incumbents, innovators and regulators. This will require balancing competing interests, significant time and investment to replace existing financial infrastructure, as well as changing existing regulations, standards of practices and creating new legal and liability frameworks.
New financial services infrastructure built on blockchain technology will redraw processes and &8220;call into question orthodoxies that are foundational to today’s business models.&8221; This includes question the need for individual books of record through immutable and distributed record-keeping, challenge existing competitive advantage models that leverage information asymmetry, allowing for on-demand and immediate monitoring and reducing the need to trust and rely on counterparties.
That said, there are still a number of questions that need to be answered in order to move forward. These include assessing blockchain’s feasibility, quantify benefits and analyzing implementation details.
&8220;Cost-benefit analyses need to be conducted to determine the financial viability of distributed ledger technology,&8221; the #report says. &8220;Roadmaps need to be developed to achieve market participant collaboration and establish standards; governance models, backed by societal-level discussions, need to be envisioned to support technology accountability; and regulatory, legal and jurisdictional-specific tax frameworks need to be established and well-understood.&8221;
#Blockchain, artificial intelligence (AI), machine learning and Big Data will transform #capital #markets, according to #German #stock #market #operator Deutsche Boerse. It urges established financial infrastructure players to start approaching #fintech firms and consider partnering with these innovative ventures.
In a new report entitled ‘Future of Fintech in Capital Markets,’ Deutsche Boerse, in collaboration with fintech research and advisory firm Celent, analyzes the potential impact of fintech on market infrastructure incumbents and highlights the opportunity for providers in partnering with these new innovative ventures.
According to David Easthope, senior vice president and responsible for the securities and investments practice of Celent, pioneering fintech firms are transforming major parts of the financial services ecosystem. He urges incumbents and fintech firms to start pursuing a collaborative approach, arguing that fintech will mostly likely shape the future of capital provision, #technology, and other industry workflows.
In 2015, about US$ 19 billion in capital was invested globally in fintech across approximately 1,200 deals, highlighting the general appetite for financial services disruptors.
The report points out five capital market fintech clusters and technologies:
Blockchain technology and distributed ledgers have the potential to substantially change the nature of issuance, and potentially enhance exchanges&8217; role in price discovery, access liquidity, reduce frictional costs and offer a path to a more efficient core market infrastructure.
Post-trade digitalization: firms are looking into Big Data, AI and advanced analytics to process and create compliance and regulatory reporting. Regulatory technology (regtech) is an opportunity for incumbents to improve their operational efficiency, reduce systemic risk, and provide additional revenue-generating opportunities.
Machine learning, predictive analytics and Big Data technologies, will impact capital markets by providing tools to mine data across the value chain. New methods of data delivery and tools for insight and prediction will allow firms to make better decisions around allocation and risk, and investors to gain access to next-gen index products, ETFs, as well as other innovative trading and investment products.
Investment technologies, including automated investment management tools or #robo-advisors, are gaining relevance as the industry continues to shift towards automation in asset allocation and rebalancing. On the retail side, customers are shifting to cloud-based digital solutions that are accessible in terms of pricing as well as usability.
Alternative funding platforms and peer-to-peer business models are reshaping traditional channels for equity and debt capital formation, opening up new networks for accessing capital. Financial market organizations can capitalize on this trend and provide new solutions to the financing and funding market.
As trends in digitalization accelerate, established technology firms and market operators will need to collaborate with new business models and innovative technologies.
&8220;The financial market infrastructure provider of tomorrow will have leveraged its leadership in regulation, market structure, trading, clearing, and settlement to guide startup fintech firms in the journey towards creating an effective and safe capital market for the twenty-first century and beyond.&8221;
The report was released simultaneously with the announcement of Deutsche Boerse Group&8217;s new corporate venture capital platform, DB1 Ventures. The team, based primarily in Frankfurt, said it will invest in early to growth stage fintech firms and manage the group&8217;s existing portfolio of investments.
According to Carsten Kengeter, CEO of Deutsche Boerse, the idea behind DBI Ventures is to allow the group to continue on being an active investor in the space. DBI Ventures will primarily focus on ventures and products that &8220;are core or adjacent to our client, product, geographic and technology strategy,&8221; according to Kengeter.
Committed to keeping up with emerging fintech trends, Deutsche Boerse has been involved in the space via various means. In April 2016, the group launched its Fintech Hub in Frankfurt, an initiative aimed at acting as a cluster for German financial innovation.
Deutsche Boerse is also an investor in Digital Asset Holdings, a developer of distributed ledger technology for the financial services industry. In November 2015, it invested in Illuminate&8217;s IFM Fintech Opportunities Fund, which focuses on areas such as compliance, regulation and connectivity.
In July 2015, Deutsche Boerse acquired forex trading digital platform 360T for 725 million euros.
Featured image: Deutsche Boerse by Jochen Zick, Action Press, via Flickr.