Banks and others saw activities such as trade finance, derivatives netting and processing, and compliance (alongside payments) as prime candidates. Early blockchain development was led by financial services, which from 2012 to 2015 assigned big resources where it was felt processes could be streamlined. Some sense of this dilemma is starting to feed through to industry. On that basis blockchain’s payments use cases may be the wrong answer. Given the range of alternative payments solutions and the disincentives to investment by incumbents, the question is not whether blockchain technology can provide an alternative, but whether it needs to? Occam’s razor is the problem-solving principle that the simplest solution tends to be the best. In addition, the payments industry faces a classic innovator’s dilemma: incumbents understand that investing in disruption, and the likely resulting rise in customer expectations for faster, easier, and cheaper services, may lead to cannibalization of their own revenues. These companies may also be willing to move forward more rapidly with integration. SWIFT’s global payments innovation initiative (GPI), meanwhile, is addressing initial pain points through higher transaction speeds and increased transparency, building on bank collaboration.īlockchain players in the payments segment, such as Ripple, are increasingly partnering with nonbank payments providers, the businesses of which may be a better fit for blockchain technology. Of nearly $12 billion invested in US fintechs last year, 60 percent was focused on payments and lending. Numerous fintechs are disrupting the value chain. However, blockchains are not the only game in town. In payments, for example, it makes sense that a shared ledger could replace the current highly intermediated system. One reason for the lack of progress is the emergence of competing technologies. The vast majority of proofs of concept (POCs) are in pioneering mode (or being wound up) and many projects have failed to get to Series C funding rounds. Stage 2 is when demand begins to accelerate, the market expands and the industry or product “takes off.”Īcross its many applications, blockchain arguably remains stuck at stage 1 in the lifecycle (with a few exceptions). Sales tend to be low and return on investment is negative. This is ahead of proven demand and often before the technology has been fully tested. Stage 1 is when the industry is getting started, or a particular product is brought to market. Classic lifecycle theory suggests the evolution of any industry or product can be divided into four stages: pioneering, growth, maturity, and decline (exhibit). It is also unregulated and selectively distrusted. It is an infant technology that is relatively unstable, expensive, and complex. Infant technologyįrom an economic theory perspective, the stuttering blockchain development path is not entirely surprising. The bottom line is that despite billions of dollars of investment, and nearly as many headlines, evidence for a practical scalable use for blockchain is thin on the ground. Of the many use cases, a large number are still at the idea stage, while others are in development but with no output. A particular concern, given the amount of money and time spent, is that little of substance has been achieved. There is a clear sense that blockchain is a potential game-changer. The financial industry spends around $1.7 billion annually on experimentation. IBM has invested more than $200 million in a blockchain-powered data-sharing solution for the Internet of Things, and Google has reportedly been working with blockchains since 2016. Venture-capital funding for blockchain startups reached $1 billion in 2017. One sign of blockchain’s perceived potential is the large investments being made. The most impressive results have seen blockchains used to store information, cut out intermediaries, and enable greater coordination between companies, for example in relation to data standards. These range from new land registries, to KYC applications and smart contracts that enable actions from product processing to share trading. Amid intense experimentation, industries from financial services to healthcare and the arts have identified more than 100 blockchain use cases.
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