by Diana Ngo
The adoption of blockchain technology across capital markets is now seen as a matter of “when, and not if,” according to Shagun Bali, research analyst at TABB Group and one of the authors of the ‘Blockchain Technology: Pushing the Envelope in Fintech’ report. In the new document, the international research and consulting firm claims it expects to see financial institutions adopt blockchain technology for capital markets as early as Q2 2016.
Released earlier this week, the 21-page, 6-exhibit report explores the future of blockchain technology in the financial markets and discusses the technology’s benefits and challenges.
“The blockchain landscape and evolving ecosystem present a unique opportunity and a fundamental foundational element for additional innovation in financial markets,” Bali said in a release.
“Within capital markets, a number of top use cases are coming to the fore, opening new opportunities for efficiency and generating revenue from greenfield projects, including private equity, interbank payments and corporate debt, among others.”
In a blog post, Bali wrote that blockchain tech has the potential to “be the blockbuster technology” that revolutionizes the way the industry tracks, clears and settles many of the institutions’ capital markets electronic transactions, and to disintermediate big parts of these processes.
She further indicated that the majority of these use cases were driven by experiments, investments and partnerships between some of the world’s leading banks and financial institutions and startups in the field.
Among these initiatives, TABB cited the R3 blockchain consortium, a collaboration of 25 of the world’s largest banks, including Barclays, BBVA, Commonwealth Bank of Australia, Credit Suisse, Goldman Sachs, J.P. Morgan, and most recently Mizuho Bank, UniCredit and Nordea, working on a framework for using blockchain technology in markets.
“Over the next 12 to 24 months, we will see early adoption grow,” Bali predicts. “Blockchain solutions might be rolled out for syndicated loans as early as Q2 2016, some use cases such as derivatives may still take at least two to five years to materialize.”
TABB further said that blockchain tech will not necessarily replace institutionalized clearing houses, but rather “facilitate their growth” by allowing institutions to “improvise on existing systems and processes.”
The report concluded that blockchain tech is “mostly in its proof-of-concept phase,” adding that many challenges need to be addressed in order to see the technology become mainstream.
“Blockchain requires further due diligence for defining industry standards with regards to settlements, counterparty and other transactional risks involved. The market needs regulations to maintaining a balance between security and future mass-market blockchain scalability.”