The trust-automation protocols known as ‘blockchain’ is poised to revolutionsise financial services although not as a currency or retail payment system, delegates at New Zealand’s first fintech conference heard last week.
Michael Aaron, IBM blockchain leader, told the more than 150-strong audience at the inaugural Finnotec 2016 event that the trust technology had huge potential to squeeze the financial fat out of many enterprises.
“We want to use blockchain to eliminate friction in business networks,” Aaron said, citing the Australian superannuation system as an example ripe for disruption.
The Australian super industry, he said, “has more parasites than any other known to man”, which could be decluttered with blockchain solutions.
However, Aaron said the technology had greater scope to bring efficiencies to “permissioned private business networks” than as the category-killer for money as promised by the likes of Bitcoin or Ethereum.
“I don’t believe blockchain will go retail any time soon,” he said.
But business networks would benefit enormously by implementing blockchain-based systems that provide an indelible, instantaneous and trusted record of transactions, Aaron said.
For example, after “eating our own cooking” with a blockchain service for its supply network IBM had booked massive efficiency gains.
He said prior to switching on the blockchain supply system, at any one time IBM had about $100 million of disputed claims with suppliers that took an average 44 days to resolve.
“Now we have reduced the dispute time down from 44 days to one day and have cut the dollar amount [of disputed payments] significantly,” Aaron said.
Blockchain would have broad application in financial services – and business in general – he said once there was an agreed industry-wide standard, with IBM supporting the global corporate collaborative Hyperledger project to achieve that goal.
But IBM had already built the blockchain “architecture” for some industries, including insurance, Aaron said.
“We built nine uses cases for blockchain in insurance,” he said, covering diverse areas such as medical claims, property cover, catastrophe insurance, re-insurance and investment tracking.
Historically, Aaron said insurers have “made so much money they didn’t care about costs” but the blockchain efficiencies would be difficult to ignore.
He said IBM was also willing to share (eventually for a price) its technology with “innovators to take blockchain and apply it to real world challenges”.
“We’re committed to building the fintech ecosystem and want others to work with us so we all succeed,” Aaron said.
However, he warned blockchain was not the solution for every problem, pointing out six scenarios where it wouldn’t add much value, including:
- High-performance transactions;
- Small organisations with no business networks;
- Where natural trust exists between all parties (“if you can find one, let me know”);
- Database replacement;
- Messaging; and,
- Replacing transaction processing.
“But blockchain can become the standard for how businesses operate over the internet,” Aaron said.
Finnotec was organised by Binu Paul, founder of online KiwiSaver comparison tool, SavvyKiwi, to showcase the potential for emergent technology in New Zealand’s financial services industry.