Blockchain is poised to transform the way the financial services industry operates, according to a report by Deloitte and the World Economic Forum (WEF).
The World Economic Forum Annual Meeting 2016 took place in Davos, Switzerland in January 2016, with the theme ‘The Fourth Industrial Revolution’.
The Fourth Industrial Revolution refers to the development of cyber-physical systems, of which distribitive ledger technology (DLT), or blockchain, is one aspect.
Though most commonly known as the public ledger for the cyptocurrency Bitcoin, blockchain has a variety of potential uses, and could revolutionise the way financial transactions are conducted the report argued.
The study, conducted in collaboration with figures from a number of financial institutions over 12 months, argued that blockchain will increase simplicity and efficiency by establishing new infrastructure and processes.
“DLT is one of many transformative new technologies that will shape future financial services infrastructure and should be seen as part of a toolbox,” the report said.
The WEF and Deloitte identified many areas where they thought blockchain could drive innovation and simplify financial services, whilst also making transactions and processes more secure.
The six potential benefits include increased regulatory efficiency, a reduction in counterparty risk, and operational simplification.
In terms of regulatory improvements, the report stated that blockchain enables the financial activity of regulated entities to be monitored in real-time by regulators, increasing efficiency.
The report also argued that blockchain can promote operational simplification in trade finance, through real-time monitoring and responses.
“[Blockchain] enables real-time multi-party tracking and management of letters of credit, and enables faster automated settlement,” the report stated.
The WEF and Deloitte also warned of challenges that must be overcome for blockchain to be integrated into the financial services.
The report stresses that beyond the financial investment needed, deep collaboration at all levels of the industry is crucial for blockchain to be integrated.
The WEF and Deloitte warn that these attempts to balance competing interests could significantly delay the implementation of block chain-based systems.
One such potential conflict is that an increase in transparency, as claimed by the report, could dramatically reduce the role of supporting entities such as insurers, who they claim benefit from opacity present in the current financial services system.
The report said: “Our findings suggest that this technology has the potential to…reshape financial services, but requires careful collaboration with other emerging technologies, regulators, incumbents and additional stakeholders to be successful.”