Blockchain beyond FinTech Vision from the banking industry 20 th June 2016 | Amsterdam Mark Buitenhek – Global Head of Transaction Services
Looking back on our journey so far, most of our efforts have taught us about WHAT blockchain actually is 2
In order to do that we had to start with the technology itself but quickly bridge between our “ techies ” and the business 3
What did we learn from that conversation? What is blockchain technology in essence, why it is different and what we can do with it? Database that That gives us a full That will always use That can do more And that can be allows us to share system of record. the same protocol than register made smart enough ledgers. to validate whether (historic) to execute business new entries are transactions and logic. correct. register future rights & obligations. Instead of Maintaining a full This can guarantee Allowing us to Making it possible to maintaining several history of data it compliance upfront. manage assets over manage complex and having to gives us full time. situations through reconcile auditability at any smart contracts. information. point in time. 4
If distributed ledger technology allows us to share our ledgers, what business problem do we solve? What are the SHARED FACTS How are they currently being And what does a DLT have to of the financial industry? registered and agreed upon? offer? Financial agreements: from Recorded by both parties Consensus cash demand deposits to In different system Validity derivative contracts or Based on (one-way) Uniqueness delivery vs. payment messages Immutability agreements Incurring a lot of costs to fix Authentication any differences So we rather think of blockchain as a set of technologies & concept that can be applied to a specific case 5
So what have we done so far? We started, as many others, with experiments Payments rails Securities Inter-bank ledgers Trade Customer wallet integration Commercial paper Smart contracts Chain.com Bonds BigChainDB Interest rate Chains, fabrics swaps and ledgers OpenLedger Payment stack integration Intel Ripple Ethereum Payments Compliance Use case Identity Trade investigation Clearing & settlement Financial markets 6
Technology has huge potential, but is also in its infancy 1. Lessons learned Different blockchain implementations have different • limitations when it comes to scalability, confidentiality and privacy More complexity = more potential benefits • We can’t bet on a single one of the existing chains just yet • 2. Distributed ledger technology needs several more years to fully develop 3. Many “problems” that still need to be solved are not technical, rather mostly the industry needs to come together and agree on models, standards and sometimes regulatory change 4. Despite limitations to be solved before mass adoption, the technology can bring benefits already in targeted controlled situations 5. The end game however is to get industry wide adoption 7
Our current efforts are more focused on HOW and WHERE we will use this technology to leverage its benefits 8
Ultimately, like mobile, like the internet, and like computers before that, Blockchain is not the thing . It’s the thing that enables the thing. Bart Suichies Digital Strategy & Innovation | Blockchain / Healthcare / Enterprise, Philips Health
Where is the business problem? Blockchain technology is not a magic problem-solver, nor a one-size fits all solution! Collaborate Fail fast Prioritize 10
To ING it is all about finding the business problem to solve, or opportunity to seize So as a bank, what did we need and what steps did we take? 1. Find the business problem What problem are you really solving? 2. Collaborate Who do you need to create adoption, standardization and reach? 3. Experiment, fail and try again What are your most risky hypothesis and how to test them 4. Understand what is possible and what is not (YET) Recognize current limitations 5. Define the regulatory space you are in and start conversations early! Having open conversations with other in the industry and openly share views with regulators 11
Through exploration and experimentation we found several areas of opportunity from a business & technical perspective • Not (yet) suitable for high volume, low value processing of payments Transactions • Showing potential for more complex international payment use cases regarding speed, costs and (payments) risk (transparency) • Fully digital, automated way to issue (digital) assets directly between parties • Speed up processes, increase transparency & potential to remove third parties Smart contracts • Reducing the need for paper-processes and automating hand-over moments • Fully digital assets and transparent information enable secondary markets and new business models Reconciliation, • Removing/reducing risk of reconciliation errors as well as the costs to fix them clearing & • Fully transparent ledger and potential for instant clearing and perhaps faster settlement settlement • Auditability, reporting and guaranteed compliance Compliance • Process of providing evidence • Can play a role in managing access to identity information Identity • Providing a way to sign & certify digital identities 12
Besides recognizing the problems we want to solve, what else do we – as a bank – need to successfully leverage blockchain technology? What specifically is the role of consortia? 1. Standardization – Avoid fragmentation 2. Permissioned vs. permissionless blockchains – Fit for purpose in the financial industry 3. Faster building of knowledge - Two know more than one 4. More and more collaborative initiatives (Hyperledger, SWIFT, .. etc) 5. In practice - Our experience with R3 13
Fit for the financial industry – To permission, or not to permission? And other considerations If we apply distributed ledgers in a permissioned environment this gives us the opportunity to make different choices. Some of these choices are essential for financial services, like; Confidentiality and how to establish identity Modelling specific (complex) financial assets Which reference data to use Performance requirements (scale, speed, volumes) On the other hand choices also mean that there will multiple different ledgers and technologies, so we also need to think about; Interoperability Standardization of contracts (so we can understand each others contracts) Processes for dispute resolution of smart contracts Collaboration across the industry is essential! Participating in consortia helps addressing these topics. 14
A look inside… How a consortium works. Looking back on the first year of R3 DLG. Working groups ~10 Knowledge sharing • Addressing the “hard problems” • Long-running in- depth groups leveraging member banks’ & industry experts • Projects ~42 Driven by member banks • Delivering concrete use cases and working software in a short time • Can engage external parties • External engagement Open source initiative – involved in the Hyperledger project, in favor of open- • sourcing technology Regulatory outreach – actively engaging with regulators around the world • 15
Going forward will be all about WHO we are working with and how to make industry-wide collaboration really work 16
The industry – and ING – is moving from proof of concepts towards pilots 1. Even if we still need to solve some problems, we strongly believe in its potential 2. We will see the first real pilots this year 3. ING is focusing on those cases where we can already bring customer value 17
As we move towards real solutions and realize the impact of this technology will be wide spread we need to start thinking about training more & more people 1. Business & IT collaboration has been essential from the start 2. To get the market moving we need to make connections on senior management level 3. We need to train our talents to understand the potential of this technology and come with a fresh view 4. Developing new skills to build (op top of) this technology goes relatively fast but needs attention too 5. Real expertise is scarce (cryptography) or hard to find 18
Our promise 1. We are working hard on this technology and actively contributing to its further development for the financial industry. But this will take time! 2. Without wanting to go too fast, we do want to run several pilots before the end of this year 3. We hope to start engaging with clients in the short term 4. We keep on collaborating, as adoption is more valuable than speed 19
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