Author: Priyanka Chandran, CFA, Vice President, BMO Capital Markets.
Priyanka Chandran is a member of the Fintech working group. Writing in a personal capacity she shares her views on the challenges that are delaying the implementation of Distributed Ledger Technologies (DLT) and why she believes it is a technology whose time is yet to come.
A lot has been written about pertinent use cases* of Blockchain/ Distributed Ledger Technologies (DLT) within financial services in general and asset management in particular. Having been a keen observer of this space for the past 3 years and having been involved in different capacities with a few projects, I have come to realize that there is more to this challenge than issues such as privacy and scalability. There are some obvious challenges such as regulatory clarity around issues such as counterparty default, trade disputes etc. Yet many challenges at the heart of the problem are more subtle and sometimes not fully appreciated. Some of these challenges include
Opportunity cost of $ investment
Blockchain/DLT happens to be one amongst the many technologies that are disrupting the asset management industry today. Every blockchain project in a large organization (banks, asset managers in question here) is competing for dollar spend against several other projects ranging from robotic process automation to robo-advisory, which have a more immediate impact on the top and bottom line. Thus while organizations appreciate DLT for its benefits, its implementation tends to get pushed further behind.
Technical know-how and availability of talent
Technologies from IBM’s Hyperledger to R3’s Corda have sufficient if not more features to support privacy and engage multiple institutions onto a platform. The challenge however lies in organizations having sufficient technical knowledge and the flexibility of hiring more engineers to advance these projects with minimal external support. Not every organization has the financial strength and ability to attract good talent to work full time on such projects and external support implies higher costs. This problem hinders many use cases from advancing.
Integration with existing systems
Cutting back office processes, reducing manual entries and having a golden data source have been touted as the most obvious benefits to using a blockchain. To be able to reap all these benefits, many organizations would need a complete tech rehaul. Many systems being used today for record keeping, reconciliation etc. are decades old and thus plugging them to newer technologies requires significant investment in most cases.
Despite these challenges, many organizations have come to embrace DLT and advance multiple initiatives. Yet distributed in its very true sense means other players and actors in the value chain need to adopt this technology. This is crucial to fully reap its benefits and we are not quite there yet. This is also one of the many reasons why naysayers have rubbished this technology. Yet, I continue to be a big believer in DLT and truly believe it’s a technology whose time is yet to come!
All views expressed in this article are my own and do not represent the opinions of an entity whatsoever which I have been, am now or will be affiliated.
