TechRepublic’s Karen Roby talks with a Gartner analyst about the reasons blockchain deployments across financial services ecosystems are least three years away.
Tech Republic’s Karen Roby talks with Fabio Chesini, a Senior Director Analyst with Gartner, about the four impediments to blockchain in the financial services industry. The following is an edited transcript of the conversation.
Karen Roby: Tell us about the findings from Gartner’s research.
Fabio Chesini: All of these four key impediments that we identified in our recent report we highlighted in our Cape Town Symposium. It all comes down to understanding the shifting power game that is happening by the usage of blockchain technologies. That’s why I used to say that in order to understand this, we need to put in perspective on how these changes are happening in the financial service industry. As a consequence of that, I used to say that a similar pattern that we saw with the internet, that democratize information exchange, the same kind of pattern is happening with public blockchains by democratizing liquidity and value exchange.
And, if we think for a moment what happened with the internet in which, what the internet-enabled, it was a huge unbundling and re-intermediation on several services like, for instance, marketing and also the internet that brought this kind of illusion of disintermediation. But in the end, what happened is that new central were created, you name it, LinkedIn, Google, Facebook, et cetera. So all of them, all of these organizations took advantage of let’s say the exponential growth that the internet-enabled it for information exchange. So when we put in context, public blockchains, and cryptocurrencies, they are enabling exponential growth on how people and organizations can do value exchange. So what we are saying is that a similar pattern on this unbundling and re-intermediation that happened with the internet, a similar pattern will happen with value exchange, which is at the end further and unbundling reintermediation.
And this means a new game board and a new way to play this, the financial service game if you will, in this new era. And this is where it comes, the four key impediments. Because if we think for a moment, the four key impediments that we are talking about are mainly, for me, the most important one, it is about government. Even though public blockchains has a kind of a decentralized governance model. When we need to think about who is building the trust behind these systems, it is actually the people behind a certain public blockchain. So this is where we need to start understanding the interest and the shift in power game among the different participants across a public blockchain. So what is happening is that the enterprise says okay! So maybe blockchain, it is a kind of a new way of enabling governance and play these power games in a more decentralized way.
SEE: Special report: How blockchain will disrupt business (free PDF) (TechRepublic)
But the reality is that governance is yet very immature. Not only in the public blockchains, which are very obscure at this point in time, but also if you try to contextualize these types of new governance models in the financial service sector, it is yet very immature. So that’s a vote of governance and the dynamics on the shift in the power game. And the other thing it comes about standards, which is, if you think for a moment, every blockchain is trying to impose its own de facto standard because by the time you can impose your own de facto standard, this means that you are forcing, if you will, the community to join and you can take advantage of the network effect that these standards generate. But the reality is that standards are very fragmented.
We are seeing that in the upcoming years, we will see a massive consolidation around standards, which are tightly related to the other impediment, which is about governments that I mentioned to you before. And that’s why in terms of the standards we, you know, we are not, let’s say we’re not foreseeing that you know, many, many standards that will be available. Now we have a huge fragmentation. I mean if we’re putting the context, the pattern like the internet, right? That we had several options on how to do marketing, for instance, and now there are very specific de facto channels, if you will, that must be used in order to have a good impact. Well, with public blockchain will happen or will blockchain will happen the same thing. We will have a subset of the standards consolidated, and we are still in that space, and this is where we are seeing that we are still, three, or maybe five years away for making that happen.
So these are both governance standards, and the other two are mainly around interoperability and integration. When we speak about interoperability, it is about, well, because each of them are trying to enable its own standard. We see fragmentation, and it’s yet a lack of interoperability between them. And, if we put on top of those enterprises that need to integrate their systems on top of this fragmented space. It is certainly another barrier that should be managed and mature in order to allow well established financial institutions to start getting to the advantage of this technology.