The experts say that blockchain is set to disrupt just about every sector of the financial industry. Whilst it will ultimately ensure a more efficient, secure and transparent financial marketplace, it will undoubtedly cause a fair amount of pain along the way.
Presently, interbank transactions rely on trustworthy third parties to maintain a central ledger. These third parties, such as clearing houses, stock exchanges and settlement organisations as well as in-house back offices are there to reduce the risk between parties such as Banks. who in effect. don’t trust each other. When everyone has the same trusted and agreed record, which the blockchain ledger will provide, those third parties will no longer be needed. Nor will it be necessary to employ teams to author, approve and monitor transactions. Errors are reduced because transactions are visible to any related parties such as lawyers, accountants and controllers, not just the transacting parties. With conciliation errors eliminated there is no need for the staff currently employed to resolve them.
Consequently, this will lead to reduced staffing to cut costs, for instance Morgan Stanley believe they can halve their costs with the use of blockchain and UBS, the Swiss banking giant, see an opportunity to greatly restructure its cost base by using blockchain.
Some of the greatest impact, as well as that on third parties, will be felt in post trade settlement, insurance, compliance and regulation and trade finance – trade finance is currently a cumbersome slow process involving many entities across the world that don’t trust each other, hence the need for third parties to mediate.
Blockchain initiatives have already been launched by banks and insurance companies. Regulators too are keen on blockchain, the regulator just becomes another node on the blockchain and has complete visibility of every transaction, making it easy to police and monitor individual trades. This means, for individual firms, they can reduce the amount of people needed for compliance because the technology will provide an irrefutable record of each and every transaction made.
It is predicted that tens of thousands of jobs will disappear and the challenge to governments and financial organisations will be to ensure that the damage to workers in the industry is mitigated to the greatest possible extent.
As technology marches relentlessly on, we will all need to adapt. In a recent Mckinsey report looking at Robotic process automation (RPA) – explained as taking the robot out of the human, “a type of software that mimics the activity of a human being in carrying out a task within a process, It can do repetitive stuff more quickly, accurately and tirelessly than humans, freeing them to do other tasks requiring human strengths, such as emotional intelligence, reasoning, judgment and interaction with the customer” – it estimated that as many as 800 million roles would be displaced by RPA by 2030.