Despite the “hype” around banks’ development of distributed-ledger technology – known as blockchain – it will take at least 10 years for it to transform financial services.
That is according to Veronica Lange, the head of innovation at UBS. Speaking during a panel discussion at the Innovate Finance Global Summit on April 10 she said that when UBS started its research and development on blockchain, it knew it would be a “longshot”.
“There has been some hype in the market and some people have the expectation about a very fast materialisation of benefit,” Lange said.
She added that while progress has been made on the technology in recent months, applying it and making it real is a different matter. “The true benefit and what we are all kind of fantasising about… that will require a much more solid and robust market fabric to deploy on.”
Blockchain was originally created to underpin the crypto-currency bitcoin, and at root is a shared database system by which every market participant has a record of every transaction. Many in financial services expect it could simplify the way trades are done and could save banks billions.
But Lange’s views were shared by Anthony Woolley, chief investment officer at Societe Generale in the UK, who said that the assumption was that blockchain could be easily plugged into the financial services sector.
He said: “The reality is you can’t. Blockchain as it was taken then, does not work in financial services, it needs to be adapted. We are basically building a new infrastructure for capital markets and that’s not simple or trivial.”
The banking executives’ sober assessments came on the same day the UK’s Financial Conduct Authority published a discussion paper on blockchain to open a debate on its risks and benefits.
The regulator also said it had approved twice as many startup firms for its “regulatory sandbox” initiative – 31 – in 2017 as it accepted in 2016.
The FCA said the sandbox had “live-use cases” of distributed ledger technology, and “given the progress being made by industry towards real world applications… we think that now is the right time to consider how DLT may impact activities across the sectors we supervise.”
Societe Generale’s Woolley said there are a number of impediments preventing quick adoption of blockchain by financial services, including the complexity of financial markets, and privacy concerns. He said it would be five years before the tech “will start to have substance”.
UBS’s Lange went even further with her 10-year prediction, pointing out: “We still see people do trade finance with faxes.”