Blockchain - a Solution Looking for a Problem?

In every facet of business banking Blockchain prototypes have swiftly become de rigueur. Major banks announce proof of concepts with increasing regularity accompanied by breathless media releases citing successful investor, developer and market regulator consortiums. Amid the hype and anticipation, is distributed ledger technology (DLT) the cure-all banks are desperately seeking to offset diminishing customer trust?


Can Blockchain absolve financial services providers struggling to overcome the daunting technology challenge posed by nimble new entrants and Fintechs? Or will lengthening lead times on practical real-world solutions continue to raise concerns over the ultimate viability of Blockchain as the turnkey solution to seemingly all financial markets product and service ails?


Initially designated as the supporting infrastructure behind emergent cryptocurrencies, DLT has been warmly embraced by the very banking institutions targeted for disruption by disintermediated marketplaces themselves. Blockchain has been highlighted as a fit for purpose solution to overcoming customer pain points including:


  • Trade Finance – entering the 21st century at last through long overdue digitisation of paper heavy processes, HSBC Blockchain Platform, DBS Blockchain supply chain logistics platform, ITFA digital bills of exchange
  • Cross border payments – reducing costs, administrative errors and execution time
  • Instant Payments - Interbank Information Network (IIN) consisting of 75 major banks including JPMorgan, RBC, ANZ and recent adapter Deutsche Bank testing faster payments to fight the threat of new payments competitors. Banking industry’s largest DLT application
  • Equities clearing, settlement and asset registration – ASX CHESS replacement with DLT specialist Digital Asset Holdings and virtualisation and infrastructure technology supplier VMware
  • Credit approval – automated, irrevocable processing
  • Digital currency – Facebook’s Libra, Marshall Islands SOV Blockchain-based national currency (Marshallese Sovereign), Eurozone public eCoin, central bank reserve eCurrencies


Fast Blockchain development is infamously hard to come by. Despite growing ubiquity evidenced by the release of Blockchain enabled smartphones by Samsung and LG, half of the world’s top universities offering dedicated Blockchain courses and Shell’s multiple investments in a Blockchain platform with Sinochem Energy, BP, Macquarie and Vakt Global to facilitate crude oil trading between commodity firms, there is no end to the number of business banking pain points Blockchain is nominated as a potential solution to. Successful test cases are a long time coming and wide scale adoption beyond traditional applications of the technology are few and far between. The ASX’s CHESS replacement is scheduled to go live by 2021 while project lead times continue to stretch beyond planned release towards 2022 and beyond, matched by softening investor activity.


Instead, new Fintech investment is increasingly being funnelled towards artificial intelligence (AI) and internet-of-things (IoT). Venture Scanner report that AI funding in H1 2019 is projected to be the highest on record at US$11 billion while annual IoT funding almost tripled since 2014 to US$26 billion.



East & Partners voice of the customer Global Insights research reveals institutional banking customers mirror this trend, prioritising IoT, Big Data Analytics and AI ahead of Blockchain:


Based on direct interviews with CFOs and corporate treasures of large Chinese corporates conducted by East & Partners, two thirds see IoT offering the most upside opportunity to improve supply chain efficiencies (60.4 percent) by enabling easier tracking of goods up and down their supply chain in addition to improving inventory tracking and forecasting.


54.9 percent of large mainland Chinese corporates also see value in self-executing ‘smart contracts’ with the terms of the agreement between buyer and seller embedded into coding. Big data analytics was cited by one in three corporates as a leading factor (34.1 percent) followed by cryptocurrency (16.5 percent) and AI (15.4 percent). Blockchain surprisingly failed to register as a prominent factor.



As emergent Blockchain platforms encounter scaling issues and pressure mounts to ‘get to market’, tension is rising between key stakeholders. The push for faster adoption has reportedly led to internal conflict within R3, a leading enterprise Blockchain software developer underpinning Voltron and Marco Polo trade finance platforms. R3 has raised a staggering US$120 million in funding and employs over 200 staff across New York, London, Singapore, Hong Kong and Brazil. The antagonism is allegedly due to a ‘culture clash’ between engineers and management over the future of the group’s leading enterprise product ‘Corda’.


Progress for practical Blockchain solutions is gradual at best, with a paperless trade transaction successfully executed using the Voltron platform in recent months. Evidence of progress is arguably long overdue given up to one fifth of total Trade Finance costs are estimated to be associated with cumbersome documentation and paper heavy processing delays. Many importers and exporters astoundingly still rely on physical contract delivery by courier.


We believe Blockchain can solve a lot of problems however they're still working on individual proofs of concepts and a few pilot transactions. Not to detract from the credit of having gotten to that space, we are only concerned about the scalability. It seems to be working between very large corporates or within related subsidiaries on each side. The real test of it will be when a SME can go onto that Blockchain and actually post documents and claim payments against that


- Sriram Muthukrishnan, DBS Global Transaction Services Group Head Trade Product


Ultimately can Blockchain innovation keep up with rising customer expectations? While banks and central bank governors such as the Bank of England’s (BoE) Mark Carney are quick to announce successful test cases and newly launched Blockchain capability, end user clients remain largely absent from bank’s trial processes.


Central banks are divided on the issue of applying Blockchain to official reserve digital currencies as a counter to private parallel currencies such as Facebook’s Libra. Moves to introduce virtual reserve currencies are broadly supported by the People’s Bank of China (PBoC), European Central Bank (ECB), BoE and German Bundesbank yet challenged by the Reserve Bank of Australia (RBA).


RBA Governor Philip Lowe considered the creation of an "eAUD" in a speech in 2017 however ultimately found that a convincing case for issuing Australian dollars on distributed ledger technology (DLT) had not yet been made. The RBA has highlighted that cryptocurrencies face a trade-off known as the "scalability trilemma" where they can only offer two of the three crucial properties of decentralisation, scalability and security. Bitcoin can process ten transactions a second while Australia's New Payments Platform (NPP) supporting BPAY's instant Osko payment system can handle up to 1,000 transactions per second.


Customer driven solutions are clearly the missing piece in the Blockchain development puzzle with DLT commonly described as ‘a solution trying to find a problem’. Without dedicated customer buy-in and applications scalable across all business sizes, Blockchain will remain an unproven potential success story racing the clock to prove its relevance.


If you enjoyed this article, sign up here to read more from us


Do you think Blockchain is the answer we're looking for?

We welcome your thoughts on what we’ve said, get in touch with us below.