23-02-2023 | Aastha Tomar | treasuryXL | LinkedIn | After two years of hiatus, here I am again to write for the team I love the most and the team whom I owe the most in Netherlands. treasuryXL has a special place in my heart, I got linked with them as soon as I shifted to Netherlands in 2019 and since then they have been a constant source of support for me.
| 20-2-2017 | Boudewijn Schenkels | Sponsored content |
At the end of last year the SEPA Instant Payments requirements from the European Payments Council have been published. Consequently the Dutch requirements 3.0 from the Dutch Payments Association were published last month.
SEPA Instants Payments (also called SCT Inst – SEPA Credit Transfer Instant) will allow sending and receiving money 24/7 in seconds. European banking communities can go live from November 2017, the Dutch community has planned to go live from May 2019 with the first Instant Payments services. The development of the SEPA Instant Payments infrastructures of the banks and processors are in train. In april 2018 the start of the inter-CSM testing is planned, the end-to-end bank tests and the pilot phase from January until April 2019.
From our Instant Payments training classes for business professionals and IT staff, we find that participants are not fully aware of the large impact Instant Payments will have on the complete value chain and the opportunities it will bring. In order for you to understand the impact and opportunities, I will explain how Instant Payments are processed.
To give an impression of all the change aspects for users, the banks and the interbank processing side:
As the launch dates come nearer it certainly triggers managers to now thoroughly evaluate scope and time scales for (required) internal projects and ensure to be ready and steady before launch in 2019 as well as business professionals to anticipate and grasp the potential opportunities.
The key differences between the current SEPA Credit Transfer and the new SCT Inst scheme are:
In our training, we also explain the differences between the normal payment flow (SCT) and the Instant Payments flow (SCT Inst). The process flow is described below in summary and will take place in several seconds.
Figure 1. (Source: EPC Rulebook)
Several key actors are involved in the payments process:
The Originator Bank receives an SCT Inst Instruction from the Originator (Step 1). It verifies the instruction and sends the transaction to the CSM (Step 2), which verifies the message, ensures that the Originator bank has enough funds and instantly sends the SCT Inst Transaction message to the Beneficiary Bank. The Beneficiary Bank instantly verifies the payments and if it can be booked on the account of the Beneficiary (Step 3). The Beneficiary Bank confirms to the CSM if it was successful (positive confirmation) or not (negative confirmation with an immediate Reject) (Step 4). The Beneficiary can withdraw the funds (Step 5) instantly if in the previous step the confirmation was positive (and after the Beneficiary Bank has ensured that the CSM received the positive confirmation message). The CSM instantly reports to the Originator Bank if the SCT Inst Transaction had been successful (or not) (Step 6). In case the Originator Bank receives a negative confirmation about the SCT Inst transaction which indicates that the funds had not been made available to the beneficiary, the originator bank is obliged to immediately inform the originator (Step 7) and lift the reservation of the amount made in step 1.
This all means, that beside the flow of money, there is also a flow of messages between the customer and the bank. Both Beneficiary and Originator will be informed (in a few seconds) that the transaction is done (or not).
Are you interested in what the new SEPA Instant Payment will mean for your organization?
Come to our next open training (March 15 in Utrecht) or inquire about the possibilities of an in-house training.
More information at: www.paymentsadvisorygroup.com.
If you have any questions please contact us via: [email protected] .
Senior Consultant Payments @ Payments Advisory Group
| 15-07-2020 | treasuryXL | Enigma Consulting
Nowadays, mobile banking apps from pay banks are of great importance to bind and retain customers. The corona crisis stimulates companies to take steps in the field of digitization. For banks, a fully digital, fast and secure customer onboarding process is an ideal image to work towards. The onboarding process of the challenger banks still appears to have a considerable lead over the onboarding process of the major banks. This last group of banks has made few groundbreaking developments in the past year. On the other hand, interesting developments can be observed at a number of other banks examined. Triodos, Knab and ASN Bank in particular have made significant improvements.
Blog is in Dutch
De onderstaande overzichten geven grafisch weer welke bewegingen hebben plaatsgevonden bij de verschillende banken in het afgelopen jaar.
Score begin 2019 = bol met dunne zwarte rand// Score begin 2020 = bol met dikke zwarte rand
In het onderzoek van 2019 was één van de conclusies dat ASN en Triodos moesten oppassen dat het verschil met de overige banken niet te groot zou worden. Qua gebruiksvriendelijkheid heeft Triodos de afgelopen periode een aantal verbeteringen doorgevoerd. Zo heeft de online omgeving op de website een volledig nieuwe look-and-feel gekregen. Het onboardingsproces zelf is ook laagdrempeliger geworden. Zo moest de klant een jaar geleden nog een fysieke kopie van het legitimatiebewijs toesturen per post. Inmiddels kan deze kopie ook digitaal worden geüpload, waardoor het gebruikersgemak aanzienlijk is toegenomen.
ASN heeft de veiligheid van haar onboardingsproces verstevigd. In een uitzending van Rambam werd de noodzaak van deze versteviging aangetoond omdat het mogelijk bleek met een vervalste kopie van een paspoort een rekening te openen. ASN heeft daar lering uit getrokken en het lek gedicht.
Ook bij Knab zijn opvallende verbeterslagen doorgevoerd. Waar de klant voorheen de onboarding startte via de website, is het proces inmiddels volledig via de app uit te voeren. De app is ook gemoderniseerd. Verder is het mogelijk om het paspoort te scannen, een pincode via de app te registreren en is het koppelen van de identifier en de bankpas niet meer nodig. Het gebruikersgemak is met de nieuwe ontwikkelingen positief beïnvloed. Met het oog op het know your customer proces krijgt de klant een uitgebreide vragenlijst voorgelegd.
De challengerbanken houden de traditionele banken achter zich met een volledig digitaal en papierloos proces, een korte doorlooptijd en innovatieve oplossingen. De online banken dwingen de gevestigde orde nog altijd tot een verbeterslag als het gaat om gebruikersgemak en snelheid. Daarnaast zijn de fintechs stabiel als het gaat om veiligheid.
Monese en Openbank zijn nieuwkomers in het onderzoek. Bij Monese wordt de legitimatie via een foto uitgelezen en identificeert de klant zich via een selfiefilm en stemopname. Deze functionaliteiten scoren goed op gebruikersgemak. Echter is op het gebied van fraudepreventie en veiligheid veel verbetering mogelijk. Het komt voor dat de klant een betaalpas ontvangt met een foutieve naam. De naam van de klant wordt bij het uitlezen van de legitimatie niet altijd correct overgenomen en het systeem maakt daar een eigen interpretatie van. Daarbij vraagt de bank niet om een controle van de identiteitsgegevens door de klant zelf. Op dit vlak zijn gebruikersgemak, snelheid en veiligheid niet in balans.
Ook bij de Spaanse onlinebank Openbank, die in februari 2020 de Nederlandse markt betrad, verloopt het onboardingsproces volledig digitaal. De klant kan zich identificeren via een identificatiestorting of via een videogesprek. Een medewerker van Openbank stelt in het videogesprek enkele verificatievragen. Vervolgens wordt een foto gemaakt van de consument en het identificatiemiddel. Naar onze mening is de verificatie via een videogesprek een veilige en digitale manier om te achterhalen of de persoon die de rekening aanvraagt ook echt de opgegeven identiteit heeft. Daarentegen kan een videogesprek voor een klant wel een drempel zijn om het proces af te ronden. Verder dient de klant de voorwaarden te ondertekenen via een digitale handtekening.
Bij Revolut kan de klant de pinpas nu activeren in de app. Er is geen bevestiging per telefoon meer nodig. Daarnaast is een uitgebreidere toestelregistratie ingevoerd. Bunq, Moneyou en N26 hebben het onboardingsproces via de app het afgelopen jaar onveranderd gelaten.
Wat verder interessant is, is dat challengerbanken, zoals Bunq, Monese en N26, een aantrekkelijk ‘referral model’ aanbieden. Als klant krijg je een beloning wanneer je een nieuwe klant aanbrengt. Deze beloning vertaalt zich vaak in de vorm van een geldbedrag.
Het onboardingsproces laat bij de grootbanken geen opvallende ontwikkelingen zien. Bij ABN Amro is het rijbewijs toegevoegd als legitimatiemiddel en dient een klant verplicht door alle schermen van de ‘instellingen’ te gaan, zoals de limieten en alerts. ABN Amro scoort goed op veiligheid. De bank geeft aan dat zij voor de veiligheid alle post apart verstuurt. Zo ontvangt de klant vier verschillende brieven – voor de betaalpas, pincode, activeringscode voor de betaalpas en de identifier. Bovendien dient de klant voor ieder toestel waarmee mobiel wordt gebankierd een uitgebreide toestelregistratie te doorlopen. Deze extra beveiligingsstappen gaan enigszins ten koste van de gebruiksvriendelijkheid.
Bij ING en Rabobank hebben geen wijzigingen plaatsgevonden. Bij ING verloopt de onboarding met een Android-besturingssysteem soepel. Onboarding via het iOS besturingssysteem (Apple) is echter nog steeds niet mogelijk. Deze klanten zijn aangewezen op het onboardingsproces via de website.
Identificatiemethoden zoals een videogesprek, selfiefoto en selfiefilm worden steeds relevanter. De Nederlandsche Bank (DNB) heeft in de ‘Leidraad Wwft 2019’ aangegeven dat instellingen naast een identificatiestorting één of meerdere andere betrouwbare methoden dienen te gebruiken om de identiteit van de klant te verifiëren. Bij een identificatiestorting staat niet vast dat door een andere instelling een adequate identificatie en verificatie is uitgevoerd, stelt de DNB. Sommige banken maken gebruik van de identificatiestorting zonder andere methoden te gebruiken ter verificatie van de identiteit van de klant. Deze banken zullen aan de slag moeten met hun identificatie- en verificatieproces om te voldoen aan de richtlijnen van de DNB.
Samenvattend kan worden gesteld dat de grootbanken weinig waarde hebben toegevoegd aan hun onboardingsproces. Achterliggende reden kan zijn dat zij niet worden geprikkeld om het proces verder te ontwikkelen, omdat zij verwachten dat hun marktaandeel toch wel op peil blijft. De banken die vorig jaar niet uitblonken in hun klantreis, hebben prioriteit gegeven aan het verder digitaliseren en verbeteren van de klantervaring. Hiernaast hebben meerdere banken de look-and-feel verbeterd.
Interessant is hoe deze betaalbanken zich verhouden tot andere financiële instellingen. Bieden financiële instellingen met alleen een spaarrekening en/of een beleggingsrekening een veiligere, innovatievere of gebruiksvriendelijkere klantreis? Om die vraag te beantwoorden heeft Enigma Consulting de onboarding van elf andere financiële instellingen onder de loep genomen. Hiervan volgen de uitkomsten in een vervolg op dit artikel.
Als u meer waarde wilt halen uit uw onboardingsproces of meer wilt weten over de nieuwe richtlijnen met betrekking tot afgeleide identificatie, dan kan Enigma Consulting u voorzien van advies.
| 3-1-2020 | Carlo de Meijer | treasuryXL
2019 was a remarkable year for blockchain technology. A lot of things, some unexpected, happened. But now it is time to bring our attention to the New Year 2020. Just like last year, and the year before, we try to predict what awaits the blockchain industry. So, let’s look at what does 2020 have in store. What are the most expected events that will shape the blockchain ecosystem in 2020 and beyond?
By all measures 2019 was a transformative year for the blockchain and crypto space with a more realistic approach. Overall, our 2019 predictions worked out pretty much as expected. It was the year where the blockchain industry translated the hype of previous years into more practical use cases and further advancements in the field of blockchain and distributed ledgers.
Both corporates and customers were significantly increasing their understanding of where blockchain technology makes sense and where it doesn’t in terms of a solution for real business problems. The most memorable thing about 2019 for the blockchain space was the speed and sustainability with which it has regained recognition and legitimacy in the eyes of governments and institutional players. We saw the birth of new blockchain alliances, new next generation blockchain start-ups entering the market, the introduction of new infrastructure projects and a plethora of blockchain protocols matured and expanded in growth.
More spectacular was what happened in the cryptocurrency markets. New cryptocurrency trading products were launched and we saw the growth in the number of stable coins. We have seen an increase in governments, regulators and central banks engaging with crypto in general. Many central banks are paying close attention to the benefits of blockchain and the need for their own digital currency. This was mainly triggered by Facebook’s plans to launch its Libra crypto currency.
But before going into my own predictions it is interesting to look at the Gartner Hype Cycle. According to Gartner during 2019 blockchain has passed the ‘trough of disillusionment’. The industry has learned some tough lessons regarding the difficulties surrounding widespread adoption of this technology. It showed that they were much ahead of its technical and operational maturity. During this stage most enterprise efforts remain stuck in experimentation mode, with very few meaningful applications for blockchain in the real world. As a result, interest has waned as most experiments and implementations failed to provide expected results. As a result earlier start-ups were forced to end their operations.
We are now on the peak of the slope of enlightenment, when corporates and customers really learn and begin to use the technology for practical, useful purposes that will change how companies, applications and users interact. According to Gartner, the 2020s will be the decade when blockchain technology will leave small-scale proof-of-concept projects behind, and makes its way into the operational structure of multinational corporations. Over the next couple of years it will expand into a number of pragmatic use cases in payment processing, data sharing, equity trading and contract/document keeping and tracking. Blockchain will be fully scalable by 2023, according to Gartner.
Looking forward to the New Year 2020, there are several notable trends and movements in the blockchain and crypto currency area to watch. Some of the key trends we outlined this year will persist in 2020. Users of blockchain and distributed ledger technology will further focus on operational matters, deployment flexibility and, interconnectivity. They will look for enhanced services and tool offerings that meet their business needs.
1. Many blockchain start-ups will not succeed
A first prediction is that in 2020 many blockchain start-ups will not succeed in the market race for their blockchain production projects. An ordinary start-up with the use of the blockchain will not be able to get as high support as it happened before. The race will be difficult and only a few will survive the stiff competition, failing to provide expected results.
The problem does not lie with blockchain itself. There is the lack of uniqueness by these start-ups. Many repeat similar projects during the implementation of the blockchain. They create another alternative, rather than something conceptually new. Many start-ups will be just a simple waste of money since enterprises will not invest in a platform they are not confident about. Specialists and large companies are aimed precisely at finding new business opportunities for blockchain deployment. They will take a wait-and-see attitude. So it will last until the best use of this technology appears.
2. The token market will be cleaned up
Another expectation for 2020 is that the market for tokens will be cleaned up. As exchanges are forced to increasingly professionalise and investors gradually shift their focus to quality, so-called ‘zombie tokens’ for projects that are far from market-fit will be more aggressively delisted. New tokens coming to market will be few and will all be more mature. It is expected that the majority of publicly listed tokens will be delisted and/or cease trading. So from existing 2500 tokens actively traded today not more than 1000 tokens will be remain by the end of 2020.
3. Blockchain technology will become more mature
Blockchain itself, however, is far from a failure. What we have seen in 2019 is the increased maturity of the technology. And this trend will continue in an accelerated way in 2020 and beyond. Next year will mark the start of more mature and usable networks creating decentralised applications, building an increasingly competitive landscape for projects to “battle it out” in order to become mainstream.
Going forward, in order for blockchain platforms and the apps built on top of them to stand a chance of making their mark, the focus should be much more on improving usability and finding product-market fit. 2020 will see the launch of multiple ‘third generation’ blockchain projects, with a greater variety and reach of applications being built on top of the DLT ecosystem. Multiple large chains will be releasing significant technology upgrades such as Ethereum with ETH2.0 and NEM with Catapult, both in early 2020.
4. More realism will enter the blockchain market place
More realism is expected coming into the market towards blockchain and its implementation. Those responsible for blockchain projects will take a more informed and strategic approach. The effect will be that in 2020 there will be a more realistic and pragmatic approach to blockchain projects. Enterprise DLT teams will thereby focus on realistic use cases that might deliver a particular benefit and bring existing projects closer to, or into, production.
We will see a shift away from so-called R&D-type exploratory proof-of-concepts (PoCs) run in isolation to a focus much more on the end-to-end process to which blockchain/DLT will apply. This means more emphasis on how frameworks perform and how well they integrate with existing systems and, potentially, each other. As a result of this approach we will see more successful implementations of blockchain technology, whereby there will be improved ties between blockchain and business management solutions. .
Though scepticism will remains (for the time being), and many enterprises will take a wait-and-see attitude towards blockchain adoption, the increased maturity of the blockchain technology will certainly trigger adoption in the coming year(s). More and more enterprises will understand the added value of distributed ledger technologies (DLT), including transparency, immutability, and decentralization.
A Deloitte report revealed that 34% of companies have already initiated a blockchain deployment, while 86% of leaders are confident that its mainstream penetration is inevitable – results which are clearly indicative of the continued maturation of the market. But before seeing real widespread adoption blockchain technology will need to mature further, not only technically but also as a part of a more complete ecosystem.
1. Finance industry will continue to lead blockchain adoption
Once blockchain overcomes the initial hurdles, it will be a game changer for many industries with finance expected to be the “leading takers” of the blockchain technology. Unlike other traditional businesses, the banking and finance industry will not be extremely reluctant in adopting blockchain.
According to a recent PWC report, by 2020, 77 % of financial institutes are expected to adopt blockchain technology as part of an in-production process. Financial corporations are more likely to embrace blockchain for more traditional banking operations owing to the plethora of advantages it has to offer. Blockchain will more quickly take root in financial services for security and management of identities – first for businesses and later for consumers.
2. Enterprises outside the financial sector are more reluctant
Enterprises outside the financial sector however show a more reluctant attitude towards blockchain adoption. But moving into 2020, they may change their attitude towards a more positive but realistic one. Over the next 12 months, these companies will first need to analyse their business models, and ask how (as opposed to whether) blockchain is going to disrupt their industries.
With the growing maturity of this technology blockchain will become another piece of enterprise technology that helps an organization become more secure and efficient, even enabling new business models that grow the business or enable net-new businesses (some completely decentralized). Positive measurements of the value derived from blockchain in enterprise production environments will encourage a much broader uptake. With giant companies such as Amazon or Microsoft committing to building services around blockchain, we will begin to see accelerated adoption by enterprises and customers as they tackle the issues that have long time being hurdles for mainstream adoption – with real world solutions coming into play from 2020.
3. Further government integration of blockchain
Although governments around the world remain centralized, there are opportunities for them to incorporate decentralization into certain aspects of their activities. There are several countries, including the US, Japan, Denmark and even Estonia, that are already practising blockchain implementation in government agencies. Countries such as China and Estonia are utilizing blockchain to manage citizens’ healthcare data and create digital identity systems respectively.
In 2020 we may expect other governments actually accepting blockchain advantages and begin to use it to optimize financial and public services. We will certainly see further government integration of blockchain technology in order to process large quantities of data between agencies, services and administrative bodies each having their own database. Distributed ledgers will be crucial to streamlining interaction and information sharing between these entities. The adoption of blockchain technology for effective data management and the introduction of a distributed registry will greatly simplify this procedure and will improve the functions of government sectors.
4. Battle between private and public blockchains
In 2020, the battle between private and public blockchains will further heat up and the debate will reach corporate executive teams. Though enterprises often prefer to operate in their permissioned blockchain network and at first will be sceptical of public ledgers, this stance will change over time. The permissioned versus public network debate will see blockchain/DLT-based applications falling into two main categories: a. consumer-focused DApps, which will usually use public (permissionless) blockchains; b. enterprise applications, built almost exclusively on private (permissioned) networks using enterprise DLT frameworks.
While it’s not realistic today to support complex enterprise use cases at scale on a public blockchain, concerns about interoperability between multiple chain silos have already resulted in discussions about the role of public blockchains in enterprise processes. With multiple networks already existing for some of the most popular use cases (such as supply chain or trade finance), proliferation will continue.
5. Enterprises will utilize hybrid blockchains
As the hype around blockchain cooled, and corporates turned back to a more realistic approach, non-technical challenges and interoperability hurdles have emerged. Permissioned blockchains, while great for B2B uses, don’t connect with consumers who need an open ledger accessible by any mobile device via an API.
For this reason, many companies are looking for ways to close that gap and make the best of the decentralization of public blockchain networks on one side and the additional security of private networks on the other. Tech companies such as IBM and blockchain platforms like Corda and Ripple, are already responding with enhanced offerings and will continue to build these out to meet enterprise demand.
The International Data Corporation (IDC) reports that it is time for hybrid cloud initiatives to focus on IT goals, in addition to business objectives. 2020 is expected to be the year when we will start to see growing offerings of so-called hybrid blockchains. Hybrid blockchains, are a combination of a private or permissioned blockchain and public blockchain. According to surveys it is expected that more than 80% of future blockchain deployments will be hybrid or multi-cloud — or both. Especially networks with stringent data sovereignty and confidentiality requirements will clearly have chosen frameworks that support hybrid or multi-cloud models.
6. Interoperability will move center stage
In 2020, enterprises will increasingly focus on operational matters, demanding deployment flexibility and interconnectivity between networks. In 2020 the call for interoperability between the many blockchain networks and the various (and also distinct) protocols that have been launched will intensify. We still see a lot of private PoCs, often testing different blockchain technologies for the same purpose: to weigh the pros and cons. Each blockchain has varying levels of security, performance and privacy.
We have witnessed the emergence of multiple networks addressing the same use case. Already several networks cover identical or similar functionality, including: trade finance, invoice factoring, shipping documentation. Participants in these networks are keen to understand whether, and how, these various chains will be able to interact. These are all reasons we predict that the future will involve more focus on getting these to interoperate.
As networks expand, nodes will distribute across multiple cloud providers. This will apply even if a network leverages its managed blockchain offering from a service provider. Cross-blockchains pilots are expected to see live in 2020. The move of Hyperledger Besu to Linux Foundation Hyperledger, should be seen as a “definite” sign that permissioned Blockchains might start to cross. There is a thorough research conducted on how digital assets on various chains might co-exist.
7. Growing competition between blockchain platforms
Progressing to 2019, many enterprises joined existing consortiums around the most popular use cases. Most of these consortiums are now looking to go into production in 2020, thereby solving specific use cases including identity and document management, supply chain management, trade finance, IoT applications, etc.
For 2020 we expect more customizable permissioned networks forming as well as growing competition between blockchain platforms. Not only between the main existing blockchain platforms, Corda, Hyperledger, Ethereum and others, but also from new comers that could upset the existing balance. Who will become the market leader is still open. We also expect several integrations with other blockchain frameworks. Such as Digital Asset that is now firmly focused on its smart contract modelling language, DAML, integrating it with other frameworks. We will a number of interesting combinations emerge.
Blockchain communities will increasingly recognize the importance of good governance and will prioritize it in order to stay competitive and stand out from an increasingly crowded field of competing platforms.
8. Internet of Blockchains
Another development, may be not yet for 2020, but certainly for the coming years is the development of an Internet of Blockchains, just like the existing Internet. The next generation of blockchains will be a flexible system of a multitude of independent/sovereign yet cooperative entities with different applications, philosophies, and validator. The ecosystem will be an open, sovereign, secure network of interconnected blockchains, that will be able to interoperate made possible by interoperability protocols like Inter-Blockchain Communication.
1. First national digital currencies will be launched
The Facebook Libra announcement has provoked a lot of debate at central banks throughout the word. From a recent survey 80% of countries are concerned about the popularity of uncontrolled financial assets. There is a consensus around the world among central bank governors and governments at large that they want to maintain control of money and money supply. A number of countries have already come with plans for launching their own national digital currency.
In 2020 we will see the launch of the first national digital currencies. It is thereby very likely central banks will focus on the wholesale market leaving the retail market for regulated institutions. China is pursuing its the Digital Currency/Electronic Payment (DC/EP) initiative and next year we will see the People’s Bank of China roll out its digital yuan. Russia’s Central Bank is also considering possibilities of issuing its own crypto Rouble in the near future, which would take the status of a national cryptocurrency. In addition, the World Bank, and the International Monetary fund have recently launched a private blockchain and quasi-cryptocurrency. The digitization of national currencies will continue its momentum in the coming years as more central banks and governments warm to the idea. Experts assumed that by 2022 at least five countries will issue a cryptocurrency.
2. Crypto currency market will be regulated
In 2019, there has already been a lot of talk about regulation in the blockchain industry and this will continue in 2020. The industry is evidently ripe for regulation granted the number of projects operating in the space. But the urgency for regulation has intensified. Government leaders and regulators worldwide are now wrestling with how they will handle blockchain technology and crypto currencies as we enter a new decade. The possible launch of Facebook’s Libra in 2020 forced regulators to take cryptocurrency seriously, and triggered many regulators to come up with more stringent regulation for crypto currencies, but without frustrating innovation. In order for blockchain and crypto to mature, enterprises and individuals need to feel completely comfortable leveraging this technology, secure in the knowledge that their government and legal systems support them.
3. Crypto currency market revised
In 2019 we saw many crypto projects failed and stopped their activities. As the crypto ecosystem matures, every project needs to have a viable use case, strong funding, strong community, and an experienced leadership team to succeed. It is expected that in 2020, this “weeding out” of poorly executed crypto projects will continue. Some even predict that “98% of crypto projects and their currencies will go to zero or have no viable exit for their holders”. In 2020, we may expect mergers and acquisitions to accelerate in the cryptocurrency sector across both exchanges and technology. In order to achieve full compliance and trust in the industry, exchanges have to work diligently to regulate themselves. In a similar way, we do believe exchanges will work more harmoniously toward regulation and pricing.
The trend we saw from the last few years that issuers are tokenizing fiat currencies and using them as easier exchange mechanisms on cryptocurrency exchanges will continue. There will be a clearer distinction between forms of currencies as payment tokens, utility tokens, asset tokens and security tokens. We will also see increased adoption of stablecoins, mostly fiat-backed, and driven from trading on exchanges. Another development will be the shift of major altcoins from being just a utility token towards more high-value transactions, even as a store of value. We see this shift will increasingly noticeable in 2020 as altcoins mature and demonstrate additional use cases to stakeholders and the investment community.
4. Banks will enter the crypto currency market
After the tumultuous 2019, the digital asset market will mature and crypto currency prices will continue to stabilize. As a result of this increased maturity it is expected to see more and more institutional investors enter the crypto markets in 2020 as education around digital assets improves. In 2020 we will also start to see other cryptocurrency payment systems gain momentum that do not come from legacy banking institutions. It is expected more banks to enter the crypto currency market in 2020, partly in a move to defend their positions. In this regard, we will see more big names in the financial industry coming into the blockchain and cryptocurrency sector.
Earlier this year, the US-based J.P. Morgan already announced the launch of a proprietary digital coin JPM Coin during 2020. Other examples are Fnality’s stablecoin, while the Japanese bank Mizuho announced its own crypto launch already in early 2019.
In 2020 we will also see the further integration of blockchain with other technologies such as the Internet of Things (IoT) and Artificial Intelligence. According to the IDC, many IoT companies are already contemplating the implementation of blockchain technology. According to them more than 20 percent of IoT deployments enabled blockchain based services by 2019 and this process will continue in 2020 and beyond. The IDC suggests that global spending on AI will reach $57.6 billion by 2020 and 51% of businesses will be making the transition to AI with blockchain integration.
Firms will gain measurable benefits from blockchain in conjunction with IoT and AI. Blockchain technology provides a secure and scalable framework for communication between IoT devices. Blockchain conducts much faster transactions compared to other platforms owing to its distributed nature of work.
As we recap, 2020 is going to be a pretty exciting year for blockchain in enterprises. If all these predictions come through and will be realised it may become a historical year for both blockchain and the crypto currency market, improving the attitude to this technology by corporates and consumers alike.
The focus will shift to integration and interoperability, from irrational exuberance to realistic assessment. So it looks like it is about to be THE year for new opportunities and achieving goals in a decentralized manner.
Blockchain projects and digital assets are set to grow in adoption with the like hood of rising breakthroughs in mainstream use cases. Potentially we will start to see some new business models because of the technology.
The future of blockchain is thus promising but there will still be stumbling stones in the initial stages of its journey. But leaving behind the concerns related to this technology, it seems that this innovation will gain the community’s trust.
To ensure the longevity of the blockchain and crypto industry into the next decade and beyond, key players need to work together to prioritize education, ensuring adoption continues to occur on a wider scale.
By the way, I wish everybody a great 2020.
Economist and researcher
| 25-10-2019 | Carlo de Meijer | treasuryXL
In my last blog about Gartner and Blockchain I mentioned the importance of the role of CIOs. They are supposed to play a leading role in determining if this technology could be of use for their business. Great question is: are CIOs already prepared for that role. In this blog I will sum up ten commandments for them that should be prerequisites for successful implementation of blockchain technology in their company.
In order to get grip on blockchain and what it could mean for their business, CIOs should investigate what blockchain really is, that means the ins and outs, its characteristics, how it works, how to integrate blockchain into existing legacy systems etc. CIOs should put real thought into how this technology could potentially benefit the business, asking themselves why they need it, and what value it offers over legacy database or other technologies
While in the next few years blockchain will mostly affect how an organization executes its business, longer term blockchain will eventually change the core of a business. They therefore should start focusing beyond solely on how this technology is being used today. CIOs should look for opportunities to leverage blockchain technology for deeper business changes that can drive real value. They should focus on areas where blockchain could strengthen the organization’s value proposition. CIOs should figure out which use cases are most appropriate, , and propose projects that could truly differentiate the organization.
The opportunities for blockchain technology are massive. It can significantly impact many parts of the business. The most important question for CIOs is how these changes might affect the enterprise and how can the organization exploit the technology?
CIOs need to start thinking about what value blockchain can add to their organization and how to tackle the challenges over the next five years. They should plan for incremental evolution of their own blockchain strategies. For that they should carefully look at the stages in which blockchain technology is situated. The Gartner Blockchain Spectrum distinct four phases: blockchain-enabling; blockchain-inspired; blockchain-complete and blockchain-enhanced. We are now half way i.e. in the blockchain-inspired phase. Technologies in this stage combine some elements of blockchain, but lack two core elements: decentralization and tokenization (see my blog: Gartner Blockchain Spectrum: a great tool for CIOs March 18, 2019).
Blockchain is not there yet. And – next to that – this technology is not a panacea for all companies problems. CIOs should be aware of that. One of the main elements of blockchain is decentralization. It removes central authorities from the process and enables a level of trust between two parties who have never done business before. The definition of participant will – as a result – expand beyond individuals and businesses to include things like smart contracts, distributed ledgers, connected things and DAOs.
Blockchain will facilitate the interactions between all of these participants and enable a new society, but cannot solve all trust problems. CIOs therefore should create a map that highlights potential gaps and weaknesses.
CIOs should also be aware of the various hurdles that prevent massive adoption. It will take a number of years before this technology will enter the maturity stage. Considerable work needs to be completed in ‘non-technology-related activities’ such as standards, regulatory frameworks and organization structures for blockchain capabilities to reach the Gartner Hype Cycle Plateau of Productivity. This is the third stage now also including the previous lacking instruments: decentralisation and tokenization. In a recent blog, Gartner listed eight hurdles needed for the technology to deliver its promises, including technically scalable blockchains, advances in smart contract technology, transaction risk assurance, data confidentiality, and an efficient consensus algorithm.
For effective rollouts, CIOs also need to keep in mind that blockchain is not secure in and of itself. Blockchain is a complex technology, and can lack the clarity of oversight and auditability that more traditional systems offer. As a result, compliance and enforcement costs may increase with blockchain implementation, and some regulatory environments (such as GDPR) may require oversight that is difficult to achieve with the technology. This is exacerbated by a lack of common standards or legal frameworks. CIOs should look at methods to manage these blockchain-related risks.
Company boards will have to make strategic decisions on blockchain in a climate of uncertainty. Many boards of directors will therefore call upon CIOs to brief them on blockchain due to current market hype. CIOs should therefore regular update their CEOs on new developments. The difficult task as a CIO is to explain the strategic implications of blockchain without getting stuck in its technical aspects. Board directors do not want a lot of detail. They just want the high-level issues, implications and suggested actions. CIOs should thereby focus on three main areas: a description of blockchain, frictionless markets and the cross-industry business impacts of a programmable economy. The reason for this is that blockchain has the potential to create cross-industry, transparent and frictionless markets, where transactions have almost no costs and restraints. However, be aware that the future business climate, risks and legal status of blockchain remain unclear.
CIOs should warn their board not to underestimate the impact of blockchain. Blockchain for most industries remains ‘mired between inflated industry expectations and general disillusionment’ with regard to how it can improve business processes. While most have heard about blockchain, few understand the technology and its implications for business. This bears the danger that they are underestimating the impact of blockchain. Enterprises run the risk of having their business disrupted if they do nothing about blockchain; however, undertaking a blockchain initiative carries risks too. It is important for CIOs to discuss the areas where blockchain will affect the board’s risk calculations.
CIOs should also determine and inform their CEOs whether blockchain could solve business problems and whether they really need this technology. Existing systems may look much more efficient, or could be managed cheaper compared to blockchain solutions.
Once decided to implement blockchain in their company, the greatest challenge for CIOs will be thinking about and working towards a new blockchain-based business model. As blockchain is a collaborative issue, main question for CIOs is, how they could come up with a business model in which companies in an industry can agree on common standards and operate together. This asks for a strategic approach. By focusing on a number of key areas early in their blockchain efforts, CIOs can lay the foundation toward successful execution. These areas include: make the blockchain business case, build an industry ecosystem, determine the rules of engagement, and, navigate regulatory uncertainty.
First of all CIOs should give strategic clarity when presenting their business case. This should ensure that their blockchain initiative has a business purpose around which they and other participants can align. For that it is needed to identify the business value. To get the most out of blockchain, collaboration between (previous) competitors is key. This should result in building an industry ecosystem, aimed to meet industry-wide challenges. For that it is important that CIOs discover the benefits of collaboration.
A third area of attention is to determine the rules of engagement. Every blockchain will require rules and standards, particularly around what various participants will be able to access and how they can engage. CIOs should thereby explore potential blockchain models and chose that one that fits best. Finally, CIOs need to “stay agile” to meet regulatory requirements as they evolve in the years to come. They should understand the shifting regulatory landscape.
Despite the potential opportunities of blockchain technology, organizations still face a number of important challenges when it comes to implementing blockchain. CIOs should focus on these challenges, that should be identified well in advance, in order to get the best out of this technology.
A first challenge – and not the least one – is the possible lack of skills. Because blockchain is still young and not yet a mainstream technology, there are very few professionals with skills in this area. This asks for intensive education, setting up internal and external courses, hiring externals etc.
Another challenge is the non-existence of a universal standard for blockchain. This limits the usability of blockchain in and between companies. Until you have standards, you really can’t share information in the classical sense. Though one uniform standard is still far away, Gartner predicts that there will be four main standards in about five years’ time. A third challenge is that blockchain must integrate with legacy technologies so that businesses can exchange information in a meaningful way. In some industries, this is a major obstacle. People just don’t understand the technology, or know what it is good for.
In order to get grip on blockchain and what it can mean for their business, CIOs should continue to develop proofs of concept to test blockchain’s business worthiness. Thereby they should take into account that different industry domains (upstream, midstream, downstream and marketing) and functional areas (such as commodity trading, cash management, supply chains and data integrity) are expected to adopt blockchain on different timelines.
For enterprise success, blockchain needs to be a consortium effort – not something that is used only internally. CIOs should be aware that the transformative nature of blockchain works across multiple levels simultaneously (process, operating model, business strategy and industry structure), and its success will depend on coordinated action across multiple companies. The way to create a multi-company blockchain consortium however is a very difficult one.
Blockchain should not be looked at in an isolated way. In order to get the most out of blockchain technology, CIOs should investigate integrating this technology with other ones like Big Data Analytics, the Internet of Things (IoT) and Artificial Intelligence (AI).
Once blockchain has been combined with the Analytics, IoT and AI, blockchain has the potential to change business models forever, impacting both data and monetary flows and avoiding centralization of market power (see my blog: Blockchain and Big Data: a great marriage, January 29, 2019).
Finally, CIOs should be aware of the changing world in which business exist. Not only because of blockchain, but also triggered by other technologies. The reality is that blockchain and its core elements will radically alter not only the business world itself. The future might eventually lay in a more decentralised programmable economy, that may evolve into digital societies that have a legal standing equivalent to today’s corporates and individuals. These digital societies will set the terms of competition in the future. CIOs should realise that, not only by developing the technology, but also the ethics and practices to exist in the digital society.
CIOs are counted on for innovation in their company. Related to blockchain, there however will be a need to a different approach, away from present blockchain tech-of-the-day approach to a more methodical one to innovation. This asks for a new type of CIO. To deliver, CIOs should realise and recognise that their ability to innovate is nowadays restricted by an organisation that lacks flexibility and agility. CIOs should instead become more flexible and agile and deliver an operating model that is fast, connected, and insights-driven.
Economist and researcher
| 08-10-2019 | by Pieter de Kiewit |
Recently Bloomberg reported about the authorities in Indonesia closing down 826 Fintech startups. My first assumption was this has to do with tax evasion and a very controlling government. Indonesia is most definitely not my field of expertise. Reading the article it struck me that my mindset concerning banking is quite limited and restricted to western standards. And over time I have noticed that I am not the only one. Reason to browse the internet, tell you about my findings and issues this concerning.
Even European banks are not all the same
In The Netherlands the retail banking standard was: banking services are for free and you get a decent percentage on your savings. Furthermore cheques were left in the previous millennium and even my grandmother uses on-line banking. Italian retail banking already came with an invoice long ago and cheques were and still are a standard in Germany. As many Europeans have no regular access to the (mobile) internet, banking on their computer or phone is not an option. One can also take this from the average number of banking offices to be seen in the streets of Amsterdam versus the ones in Bucharest.
Banking differences in the rest of the world
I did not do a comprehensive study but do know that for many of us Europeans a personal credit rating does not very sound familiar. When I lived in Canada I learned that you need a personal credit to get a cheque book. You get your credit rating by having an account where a regular income lands and improve it by leasing a car and pay your credit card bills in time. Without a credit rating no mortgage, a better credit rating results in a lower interest rate.
In some African countries telephone landlines were never installed and the first regular telephone was a cell phone. In parallel, bank accounts were skipped and cash is replaced by credit on this same cell phone. I think all these systems are doing a more or less proper job. Only if you want to cross the border you will need to help.
Problems with inadequate banking services
EY reports that over 200 million SMEs do not have access to banking services putting them in an offside position in the global economy. All this because the regular big banks want to deal with them as if they are a Western company. The Bloomberg article describes a situation where 90% of the Indonesian population has no credit card or access to banking services. Of course this is a facilitator for the black market economy. But also, there are examples where Fintech and loansharking are being combined with all related criminal behaviour and excessive interest rates. And, in a society without banks, what can you do with your savings? I think these are real issues.
Having browsed and learned I don’t think we should aim for a worldwide standard in banking. I hope we can learn from each other and that the banking landscape will be more honest, enabling a fair global economy. With this in mind I think I will have another look at cryptocurrencies introduced by Facebook and other new kids on the block. That is for another blog and by now I think I understand the Indonesian government better.
What are your thoughts and which interesting examples do you see around the world?
Pieter de Kiewit
Owner Treasurer Search
| 01-10-2019 | Carlo de Meijer | treasuryXL
Last year Gartner, the high-standard research institute, painted a rather realistic scenario for blockchain. In one of its research papers, Gartner stated that its latest technology hype cycle puts blockchain beyond the peak of expectations and is currently sliding down towards the trough of disillusionment stage. They estimated a 5-10 year timescale before it enters the plateau of productivity, or mainstream.
Now a year later, in a recent study Gartner show a more sober picture. They found that most enterprise blockchains have been ‘mistargeted’, and that most of the blockchains in use today will need to be replaced in a couple of years.
This raises a number of questions. According to some commentators, blockchain is having an identity crisis. They state that technology is constrained by assumptions and that technological immaturity is prohibiting efforts from moving beyond the pilot phase. Other say that this is just a normal stage in the development of a new technology?
First the bad news. The report gives a rather sober vision for blockchain technology and its near term development. According to their research that was published last June, Gartner predicts that by 2021, more than 90% of current enterprise blockchain platform implementations will fail or need to be replaced in a 18 months period. This is due to a fragmented blockchain market and ‘unrealistic expectations’ by CIOs.
A May 2019 report by Gartner already predicted that 90% of blockchain-based supply chain initiatives would suffer from ‘blockchain fatigue’ by 2023. Garner’s June research report however has a much broader industry base and should therefore be taken seriously.
The blockchain and distributed ledger technology has already become highly fragmented in terms of platforms, standards and offerings. This makes it difficult for companies to push ahead with real-world uses.
The present blockchain platform ecosystem is a very fragmented one. Today CIOs can choose from numerous blockchains available using either private ledger approaches such as R3 Corda, Hyperledger and Digital Asset or public ones such as Ethereum. Each consortium is thereby trying to make their offerings ‘the de facto basis for value exchange and digital asset representation, smart contracts and decentralised applications’. Gartner does not expect that there will be a single dominant platform within the next five years.
The blockchain platform market is composed of fragmented systems and offerings by blockchain providers that often overlap or are being used in a complementary fashion. The blockchain platforms and technologies market is still nascent and there is no industry consensus on key components such as product concept, feature set and core application requirements.
Companies are as a result unable to find an off-the-shelf, complete packaged blockchain solution. Hybrid offerings of conventional blockchain platforms are adding further confusion to justifying a use case. This adds more complexity and confusion, making it that much harder for companies to identify appropriate use cases.
Blockchain standards esp. for financial services companies are currently fragmented and immature. Standards are critical for corporates esp. in the financial industry, because they are constantly moving assets between clients, partners and other institutions. Fragmented blockchain standards are likely to prevent widespread short term deployment of blockchain and distributed ledger technology in real-world systems. Until consortiums and standards groups come together on several industry standards or de facto standards emerge, the use of blockchain will be limited mostly to proofs of concept and pilot tests.
To achieve the true potential of blockchain, implementations must be seamlessly integrated with already installed software solutions. However, major software and SaaS providers are not offering blockchain solutions as add-on features to their enterprise solutions. Currently, integrating blockchain platforms with existing systems can cost organizations millions of dollars, which further slows blockchain adoption.
Cross-industry interoperability standards are, and will be critical especially for financial services companies. These blockchain platforms however often use differing implementations, data formats, data interchange and directories, making interoperability among different blockchains difficult across organisations.
As a result of the above shortcomings there is a lack of strong use cases. Most projects have remained pilot projects, due to a combination of technology immaturity, lack of standards, overly ambitious scope and a misunderstanding of how blockchain could, or should actually help the industry.
According to Gartner, another major challenge that CIOs and IT decision makers currently face is that blockchain platform vendors often use (marketing) messages that don’t link to a target buyer’s use cases and business benefits. This may add to the confusion around blockchain capabilities and how they augment existing processes. Buyers are still confused as to how these functions are achieved or what benefits blockchain may add compared to their existing processes.
Following from the results of the Gartner 2019 CIO Agenda Survey conducted from April through June amongst more than 3000 CIOs from almost 90 countries and across major industries, there is also a mismatch between expectation and reality about how they perceive blockchain technology.
The survey shows that many CIOs overestimate the capabilities and short-term benefits of blockchain as a technology to help them achieve their business goals, thus creating unrealistic expectations when assessing offerings from blockchain platform vendors and service providers. Even though they are still uncertain of the impact blockchain will have on their business, 60 per cent said that they expected some level of adoption of blockchain technologies in the next three years.
There are a number confusions about blockchain technology leading to misunderstandings at CIOs. The vast majority of projects focus on recording data seeing it as the main offering of this technology. Many corporates however fail to use major capabilities of blockchain technology, such as decentralized consensus, smart contracts and tokenization.
Another misunderstanding amongst CIOs is their idea that the technology is already mature enough so that it is ready for production use. In fact many platforms however are still in a nascent and immature state far from being ready for large-scale production. Gartner however expects this will change within the next few years. And there is the wrong idea amongst many CIOs that protocols are identical to business applications. A protocol is the underlying technology such as Hyperledger Fabric of R3’s Corda and is invariably applicable to several industries. Applications need to be developed on top of these.
There is also the conviction in may CIOs mind that interoperability between various blockchain platforms is already a fact. Although some platforms talk about interoperability, Gartner finds it ‘challenging to envision interoperability when all the protocols are evolving quickly’.
But it is not all bad news we can read in Gartner’s recent research paper. Despite the predicted gloom and the mismatch between expectation and reality, blockchain still has a solid future. Still the underlying technology is attractive and its potential uses cases vary across industries.
Although the technology will need constant updating, Gartner also predicts that by 2025, the business value added by blockchain to the industry will exceed $176 billion. More impressive is how this figure may surge to $3.1 trillion by 2030.
The ‘chaos’ in the blockchain solutions market is expected to only be a momentary challenge, ‘one that will pass as the hype-cycle dies down, and leads to more stable, enterprise-wide or rather industry-wide applications’. Within three to five years, many of blockchain’s core technical challenges are likely to be resolved. Given the attractive features of blockchain technology it can really drive interesting projects.
Though it is very unlikely there will be a single de facto standard at all levels, Gartner expects that fragmentation will collapse and that we are three to five years away until standards mature and settle, resulting into no more than four dominant standards. This may allow for more interoperability among different blockchains.
“It’s unlikely there’ll ever be just one standard, but ultimately [there will be] a couple [of] standards bodies who’ll adjudicate…. Ultimately, there will be one or two standards..,. but no more than four”. Gartner
Software suppliers, meanwhile, will integrate and upgrade their chosen blockchain versions and ensure compatibility with their own new software releases. In the next two to three years, Gartner expects all major ERP and CRM players to offer blockchain capabilities as an add-on feature for their software and SaaS products. These efforts will dramatically reduce the costs of deploying blockchain projects across the financial services organizations and their supply chains.
The 2019 Gartner Hype Cycle for Blockchain Business shows that the business impact of blockchain will be transformational across most industries within five to ten years. But these opportunities demand that enterprises adopt complete blockchain ecosystems. Future technology developments and removing remaining obstacles may enable that.
“Making wholesale changes to decades-old enterprise methodologies is hard to achieve in any situation. However, the transformative nature of blockchain works across multiple levels simultaneously (process, operating model, business strategy and industry structure), and depends on coordinated action across multiple companies.” Gartner
In the future, more intelligent blockchain applications are expected, in line with Gartner’s predictions. Especially as we move further on the Hype Cycle and past the so-called “Inspired Solutions (phase 2)” by 2022 and get well into “Complete Solutions (phase 3)” form 2025 onwards. And finally reach he Plateau of Productivity – the point at which mainstream adoption takes off.
Companies working with the ‘myriad’ of blockchains available today should realise it is ‘highly unlikely’ the one they are using now or are planning to use short term will become the industry standard in five years. Corporates therefore need to investigate intensively how to navigate the next blockchain wave best.
Many companies want to be fluent in blockchain before the technology is everywhere. For that they need a well-founded business plan. Those who fail to do sufficient scenario planning, experiment with the technology, and delay consideration of decentralization and tokenization risk significant long-term disintermediation.
Understanding and learning how to leverage the technology to create useful and practical solutions, is of utmost importance. In order to help CIOs in their blockchain journey, Gartner came up with a list of recommendations and valuable advices. CIOs should continue to educate executives and senior leaders about the blockchain opportunities and challenges most critical for business.
CIOs should also be aware of complicated challenges and of a number of impediments when deploying blockchain projects: standards, governance, integration and interoperability. They should therefore pay close attention to these hurdles blockchain projects face. In order to get used to blockchain technology and its applications, it is important for CIOs to continue to develop proofs of concept internally as well as part of market consortiums. By doing this they may learn how to leverage the technology to create useful and practical solutions, to take good decisions.
This Garner Hype Cycle is a very useful tool for corporates to get insight in the scope of blockchain’s transformation, how it impacts various industries as well as may show the current state and evolution of this technology.
Economist and researcher
| 19-09-2019 | Carlo de Meijer | treasuryXL
In one of its reports, GLEIF, the Swiss-based organisation which coordinates the management of the global Legal Identity Identifier (LEI-) system, suggested to use blockchain technology for identifying financial legal entities, as that would not only improve transparency and security but may also lead to broader global acceptance of the LEI.
This however raises a number of questions such as: Why could blockchain be of use for LEI and its users? What role could smart contracts thereby play? What benefits could blockchain bring for the LEI? And what does the most recent blockchain-based projects for the LEI tell us?
But first, what is the LEI? According to their website definition, “the Legal Entity Identifier or LEI is a 20-digit, alpha numeric code based on the ISO 17442 standard. It connects to key reference information, allowing clear and unique identification of legal entities participating in financial transactions. Each LEI contains information about an entity’s ownership structure and thus answers the questions of ‘who is who’ and ‘who owns whom’”.
In other words a LEI is a uniform way of keeping track of financial legal entities. They are global and have no borders at all for accurate and trusted identification of companies around the world. Looking in that way, the publicly available LEI data pool can be regarded as a global directory, which may greatly enhance transparency in the global marketplace.
The management of the LEI system is coordinated and supported by the above mentioned Global Legal Entity Identifier Foundation (GLEIF), while registrations are performed by so-called LOUs or Local Operating Units.
In their report on the LEI to the Financial Stability Board (FSB) in 2012, the GLEIF stated that “the design of the global LEI system would be premised on a ‘logically’ centralized (meaning not physically centralized) database that will appear to users to be from a single seamless system”.
GLEIF however recently recognised that the organizationally federated operating model used for the LEI in 2012, could be upgraded to a technically federated operating model: the distributed ledger model (DLT). This upgrade could potentially provide the same DLT platform for both the LEI and the UPI (Unified Payments Interface), of which the GLEIF is supposed to be the natural repository. This distributed design has always been a longer term goal for the global LEI system.
The LEI provides a global standard for the representation of identity as well as a standard validation rule set. Both elements however are subject of a very detailed compliance program in order to ensure proper issuance and maintenance of LEI and data quality.
Nowadays collection and storage of data is conducted in multiple country or regionally located operating units (LOUs). Each has their own databases (there are more than 30 at present in the LEI system and a large number of separate ones for each trade repository), and send their data daily in batch overnight processes. LEI data is sent to the GLEIF. Trade repositories send their data to multiple regulators and to central collection facilities depending on the jurisdiction. All regulators and trade repositories maintain their own data copies of identifiers for products and counterparties, and for trades.
This method bears in it a number of challenges, in terms of non-optimal transparency, security and risk issues where blockchain could be of help.
When it comes to use cases for blockchain, security is one of the serious items that comes in many minds. Identity management is one sector of industry that is supposed to provide high-level security to those who rely upon it to keep their data safe. But in reality security is not always what they get. The digital age has introduced new challenges in terms of preventing identity fraud and other criminal abuses for private people but increasingly also for corporates.
Nowadays there is an increased need for strong, multi-step security that identity management services should bring. The widespread adoption of blockchain technology to ensure that any number of these centralised databases are ‘not compromised’, should give enough arguments for the identity management industry to embrace this technology.
There are a number of interesting blockchain use cases in the identity management field. These include issues like identity verification, non-custodial login solutions, self-sovereign identity, secure identities for the decentralised web etc. These use cases have all proved their usefulness in such an environment.
Blockchain’s multi-step, multi-factor identification processes have proven to work and are already implemented by a number of companies. Admittedly, it is hard to imagine why the blockchain authentication model has not (yet) gained more mainstream adoption, especially considering the stakes of stolen identities and credentials.
With non-custodial logins based on the blockchain, there is no longer need of a central entity who holds the power over user names, pass words, and the database that controls them. By removing the custodian of these credentials and replacing them with public and private keychains for logins, the former centralised entity can still ensure that ‘those logging in are who they say they are’, without holding a central database that hackers can easily acquire and use as ransom money.
Blockchains could also help reduce the number of third parties while still maintaining a user’s identity. One solution could be that a user would store their data and identifiers on a blockchain which they could use throughout the internet, instead of granting each site or service their personal data and credential time. A second proposal is built on a similar blockchain containing the user’s data but allow third parties to access the data with their consent.
Using blockchain for the identification services including the LEI would preferably be in the form of so-called smart contracts. These contracts are ‘included and coded’ applications and data representing the life-cycle processes of a trade. It is stored and activated across a networked database – the distributed ledger – which itself is networked across the Internet.
In other words, a smart contract is self-actuating, based on standardized contract terms that is translated into standard trade life-cycle processes imbedded in coded applications. The smart contract acts on standardized data sets, setting its outputs in conformity to each participant’s processing requirements.
A smart contract requires data standards, including the LEI and its reference data for each participant in the supply chain; the UPI (Unified Payments Interface) and its reference data; and the UTI (Unique Transaction Identifier). It also requires process standards for each event in the life-cycle of a trade.
But how can smart contracts be used for the LEI? The central point of using smart contracts for the LEI is to treat a single record for any entity to be identified by some key as ‘atomic’. This in the sense of being administered as a single unit of data, by the authority that assigns the keys. Then the representation of a single ‘atomic’ record can be considered as a state for a single smart contract.
Each such contract would offer a method for accessing the representation, and a dynamic data structure that holds ‘revisions’ of the representation. That is, when the record changes globally, its new representation would be added to the state of the contract. Such contract can hold many revisions of the representation, bound only by the capabilities of the network’s global storage, called ‘entity contract’. Together with entity contracts, someone can devise one or more ‘master contracts’, that keep track of individual entity contracts and make accessing an easier process.
The use of permissioned and private blockchains or distributed ledgers for identity management purposes such as the LEI will require mapping between real world entities. This is hosted via cryptographic algorithms creating public/private keys pairs linked to reference data. The owner of the private key can write into the chain.
This however raises a number of major issues: Firstly, are we going to see multiple digital IDs depending on the application or are we going to use one ID to access all applications. And second, what is the appropriate management for all these IDs.
There are a number of possible scenarios:
One could use identity labels i.e. unique keys in the blockchain/DLT application. That means using the LEI in a distributed ledger system for tracking financial instruments. This is de facto the standard approach due to legal and regulatory requirements.
Another scenario is using blockchain/DLT for managing the LEI creation and management itself. This however should be seen as a longer term project. There are still many open questions but this approach bears interesting aspects for the further evolution of the LEI system.
An interesting project that should be taken seriously for further development is the MakoLab LEI.INFO system. Polish-based MakoLab, a Digital Solution Agency for the industry, last June announced the deployment of their production grade Blockchain-based LEI system.
This was the result of two Proof of Concepts (PoCs) for a radically new blockchain LEI system, based on the private Hyperledger Indy blockchain, using the innovative GraphChain database that is much more flexible than any standard existing system available today. These PoCs allowed MakoLab to investigate deeply the possibility to construct a system which represents the ‘highest level of both technological and organisational security’ and is completely decentralised.
Given the vulnerability of the data, the suggested architecture for LEI is that of a so-called consortium type of blockchain that works on Hyperledger Indy. This is a blockchain model where the consensus process is controlled by a pre-selected set of nodes. The network of Hyperledger Indy nodes thereby runs as a private, permissioned blockchain for the Global LEI System.
In this model different nodes are used. User nodes that participate in the global blockchain as passive users. They can see all the data stored in it, but cannot create or edit anything. Registration nodes having all the properties of the User nodes plus the ability to provisionally add new LEIs to the system. However, such newly added LEIs are not visible on the system until the LOU nodes confirm them through the ‘Proof of Authority’ mechanism. And LOU nodes that have all the properties of the Registration nodes plus the capacity to confirm the new or modified LEIs as valid. Application of the blockchain technology with LOUs running their own nodes, would make the LEI system much safer and more reliable.
End June MakoLab announced the full production version of the innovative GraphChain for the LEI.INFO infrastructure. They thereby created a conceptual proposal how the entire LEI system could run on GraphChain. GraphChain should be seen as a new innovation of creating a blockchain compliant distributed database. The main idea behind GraphChain is to use blockchain mechanisms on top of an abstract RDP (Resource Description Framework) graph data model, that is used for data publishing and interchange on the web.
GraphChain is thereby defined as a linked chain of named graphs specified by the GraphChain ontology and an ontology for data graph part of the GraphChain; a set of general mechanism for calculating a digest of the named RDF graphs; and as a set of network mechanisms that are responsible for the distribution of the named RDF graphs among the distributed peers and for achieving the consensus.
The data graph model describes the semantics, or meaning of information and stores these data as a network of objects with materialised links between them, thereby managing highly interconnected data. It thereby uses graph structures with nodes, edges and properties to represent and store data.
The new functionality allows cryptographic verification of the accuracy or usefulness of the underlying LEI data. The LEI.INFO system uses the RDF graph data model to express LEI reference data as semantic data, that can be verified against the network of Hyperledger Indy Blockchain. This LEI.INFO platform allows to get instant access to the database of entities holding LEI’s and as a result to find a reliable supplier, partner or customer.
LEI.INFO offers a wide range of LEI-related services including a new LEI registration process, resolution of the LEI codes for both humans and software agents, Data Analytics Solutions and integration services for KYC and financial information consolidation applications.
From what is said before, it should not be difficult to see how blockchain and a single database that could be updated in real-time, securely maintained through encryption technology, distributed and shared by all of the participants could benefit those organisations who use the LEI. The reconciliation of the various copies of what is intended to be identical data sets could be done in real-time.
Managing LEI on blockchain delivers transparency and ensures the necessary trust and certainty optimal for combatting financial crimes, streamlining various administrative processes like onboarding, and truly knowing corporate customers, partners, and other businesses. This could ‘revolutionise’ the oversight of the financial industry. As a result of this all, it may lead to firmly reduced resources and costs of the validation process required for conducting due diligence about those entities.
McKinsey, the global consultancy estimates that the largest financial institutions alone can each save $1 billion in costs through a simplified portfolio of data repositories. ISDA members, many being the largest of financial institutions, are envisioned as direct beneficiaries of such savings.
Blockchain technology could be of great help for the Global LEI system. The MakoLab project is thereby a very interesting one that deserves further investigation.
This LEI.INFO project however is just a first step in their research and development process with this technology. Taking into consideration the growing potential of the solution, MakoLab is “working on further-enhancing the LEI resolver with other top-class solutions – semantics particularly – as well as translating blockchain into other business areas” .
In the end such an architecture of the new LEI system will enable ‘thousands of registration authorities from multiple countries to participate in the new LEI creation’, thereby opening the path for the true global adoption of the system.
Economist and researcher
22-08-2019 | by Pieter de Kiewit | treasuryXL |
Is your banker a trusted advisor or just another sales representative?The times that you, entrepreneur or CFO, could just accept the advice of your banker is over. Understand that your banker expects you to have more knowledge than before. Do know there are alternatives. And do not forget that your banker has a target (hard or soft), just like others selling products or services.
When I accompanied my father to meet his doctor, it was clear we are of different generations. He listened and accepted, I was looking for dialogue and had questions. The attitude my father showed towards his doctor, I often see with CFOs and owners of smaller businesses. Is this a problem? Where does it stem from? Should relations change?
Decades ago there was a knowledge gap between what bankers and entrepreneurs knew about financial markets and products. The number of local banks was limited as were funding sources. The interest was higher than it is nowadays (not too hard with current rates). All this led to a power imbalance between banks and their clients. You had to listen to your banker and accept. In those days bankers showed a different attitude than they did later. I often hear remarks about the former ABN boss Jan Kalff, he apparently was trusted like a medical doctor. I am afraid the bankers’ oath does not make current bankers a similar Jan Kalff.
Over time bankers and their clients have, together, changed their relationship. Starting with the one between banks and large corporates with treasury teams. These increasingly bigger teams gained knowledge and opened relations with alternative banking partners. On top of this, banks started rewarding their employees increasingly in an Anglo-Saxon way with an aggressive connection between performance and bonus. Treating your banker like a doctor was not appropriate anymore. Between large corporates and banks a new equilibrium was reached.
Between smaller organisations and banks a lot went well, regretfully not everything. One of many examples is that in The Netherlands sales of derivatives was done wrong in two obvious ways. First, clients bought products without understanding what they bought (and did all bankers really understand?). Second, bankers did not sell these products because their clients needed them to increase their bonus. A lot has been written about this.
Regretfully, a lot of entrepreneurs and also their auditors think they have full understanding of banking products and costs. I have seen too many treasury experts prove them very wrong. This new equilibrium has not yet been set.
An important extra development that has an impact on this topic is that banking services substitutes are being offered. Facebook can facilitate your payments, you can buy currencies cheap from Privalgo and there is a wide variety of extra funding sources coming up. All these solutions do not (yet) have an established market presence.
This is not a call for bank bashing. We do not bash the car sales guy for trying to sell a car. I do want to invite you to consider threating your banker as you would like any other supplier. Always remember he has a sales target. Understand that bankers have to balance their oath with this target. On top of this they see many of their colleagues being let go. For them these are no easy times.
Find out if you have the expertise to have a balanced meeting with your banker. Can you oversee your risks, do you understand the products and do you really know what you pay your bank? I have had more than one meeting with a banker in which I learned that banks themselves often do not know what they make on their clients. The amount mentioned on your bank statement about their costs does not cover everything your bank earns on you. Do you know the spread they take on your FX deals, the margin on insurance products? They and you often do not know the product alternatives and their rates. You can get low threshold expertise or send your employees to get relevant education or have them visit events. The expertise is available.
Changing relationships with your bank are only a problem if you ignore the change. The banks did not ignore and have changed. In my opinion these changes are good. Bear in mind that corporate treasury is not rocket science. Spend the time on this topic it deserves. Times are changing, so keep an eye on what is happening. It will save you cost, create opportunities and help you avoid risk. Good luck and drop me an email if you have questions.
Pieter de Kiewit
Owner Treasurer Search
| 12-08-2019 | Carlo de Meijer | treasuryXL
There is a broad consensus amongst the post-trade industry that blockchain technology will revolutionise the securities post-trade world and could radically change how assets are maintained and stored by custodians and central securities depositories (CSDs).
Blockchain technology may enable real-time settlement finality in the securities world. This could mean the end of a number of players in the post-trade area, such as central counterparty clearing houses (CCPs), custodians and others. For a long time, also central securities depositories (CSDs), as intermediators in the post-trade processing chain, thought they also could become obsolete.
This idea however is changing. While CSDs are making up their mind on their future position in the blockchain world, they are increasingly considering blockchain as enabler of more efficient processing of existing and new services, instead of a threat to their existence. But what will be their future role?
As we all now, the current post-trade infrastructure is highly complex and fragmented. Much of this complexity and fragmentation is the result of the various intermediaries needed in the post-trade process. They include players like banks, brokers, stock exchanges, central counterparty clearing houses (CCPs), central securities depositories (CSDs), real-time gross settlement (RTGS) systems and custodian banks.
In the current set-up of the post-trade environment, important record-keeping functions, such as those relating to the issuance, settlement, registration and safekeeping of securities, are performed centrally by different specialist intermediaries. Intermediaries also perform the post-trade servicing of assets, such as crediting dividend payments or bonus issues to client accounts, or managing rights issues and takeovers.
They are thereby dealing with siloed outdated legacy systems and technologies each having their own ledger that are not good communicating with each other. Consequently, they spend much time and resources on reconciliation and risk management. As a result settlement currently takes two or more days in many places, involving high risks and high costs for transacting parties.
Situated at the end of the post-trading process, CSDs are systemically important intermediaries. They thereby form a critical part of the securities market’s post-trade infrastructure, as they are where changes of securities ownership are ultimately registered.
CSDs play a special role both as a depository, involving the legal safekeeping and maintenance of securities in a ‘central depository’ on behalf of custodians (both in materialised or dematerialised form); as well as for the issuer, involving the issuance of further securities by issuers, and their onboarding onto CSDs’ platforms.
CSDs are also keeping a number of other important functions, including: dividend, interest, and principal processing; corporate actions including proxy voting; payment to transfer agents, and issuers involved in these processes; securities lending and borrowing; and, provide pledging of share and securities.
Prospects
DLT offers the prospect of rationalising and combining post-trade activities in one single action, offering safer and cheaper record-keeping, as well as more seamless securities issuance. They thereby may create significant cost savings and efficiency gains across the securities market’s post-trade infrastructure.
Disruption
On the other hand, DLT has the potential to heavily disrupt existing post-trade processes in financial services. Shared ledgers of ownership promise to revolutionise the post-trade infrastructure, Thereby impacting the business model of a number of intermediaries.
Use of a blockchain network would automate the process further, with completely integrated authentication and transparency of the transfers themselves. As a result, clearing and settlement can be transformed into a single process, in which digital and digitised assets are delivered against payments instantly, thereby removing the need for a market infrastructure provider to hold a security, or token in its own physical or electronic vault.
The extent to which blockchain will disrupt existing processes in financial services is still unsure. Some say a complete disintermediation of middle and back office processes is under way, removing most (or even all) intermediaries from the post-trade processes.
Others however say the impact of this emerging technology will be less forceful, with a (limited) number of existing intermediaries to play an important though somewhat different role.
What is sure is that for some actors in the securities post-trade world, DLT will completely replace their businesses or even make the work of some intermediaries such as CCPs and custodians redundant. Others will still be needed, but they should question what will be their added-value within future DLT services, such as CSDs.
CSDs are changing their viewpoint on DLT including blockchain. Instead of seeing blockchain as a threat to their existence, they are now also considering them as (potential) enabler of more efficient processing of existing and new services.
“CSDs could have an important role to play in a blockchain-based settlement system. As ‘custodians of the code, CSDs could exercise oversight of, and take responsibility for, the operation of the relevant blockchain protocol and any associated smart contracts.” Euroclear Report
CSDs are believed they will continue to perform an important role as trusted, centralised financial market infrastructures (FMIs), providing gatekeeping services and oversight of the relevant blockchain.
Recognising the threat as well as the opportunities of blockchain to their current services, a group of CSDs across the world has been working together and with regulators to define their future role in the blockchain post-trade environment. By working together they will ensure that CSDs from each region are represented, potentially unleashing (unimagined) network effects.
Aim of this cooperation is to explore how blockchain could be used for post-trade processes, identify, define and develop use cases in the securities depositories’ industry (including smart contracts and digital assets), and identify how existing standards could support it.
Another group of 30 central securities depositories (CSDs) in Europe and Asia are researching possible ways to “join hands” in developing a new infrastructure to custody digital assets. The CSDs will attempt to figure out how to apply their experience in guarding stock certificates to security solutions for crypto assets.
“A new world of tokenized assets and blockchain is coming. It will probably disrupt our role as CSDs. The whole group decided we will be focusing on tokenized assets, not just blockchain but on real digital assets.”
These CSDs clearly see an opportunity to apply their knowledge and skills to the crypto currency space, where “losing your private keys means losing your coins forever”. The group’s focus is looking at how to protect these keys for crypto investors, and how the tokenization of “everything stands to change everything”. The next phase of the research will also involve some large custodian banks.
There are various reasons why CSDs may continue to play a role in the post-trade bklockchain environment. That is not that strange as the primary functions of CSD may run parallel to many of those that emerge from the blockchain technology. CSDs are aware that some of those roles will neatly fit into their natural infrastructure. But there will also be some activities that will become obsolete.
Looking at the roles that could be suited for CSDs, those would be anything around safety, notary and governance.
1. Notary function
Blockchain may enable tokenisation of assets and the use of smart contracts. All these are new components in the value chain. This may mean that a digital actor will be needed to manage this tokenisation, and creation and maintenance of smart contracts, overseeing the entire securities token ecosystem. CSDs could fulfil this notary function.
1a. Asset tokenization
Asset tokenization is the representation of assets on the blockchain in the form of tokens, which are designed to be unique, liquid secure, instantly transferable, and digitally scarce – and therefore impossible to counterfeit.
In a world where securities and other assets become tokenised, some have argued that an intermediary will still be needed to issue them and create rules. Tokenised assets exchanged on a distribute ledger may still require CSDs to hold the equities, which the token represent. They would thereby fulfil the crucial notary function, both as tokenising agent and as operator of the escrow accounts in which the real assets are hold.
1b. Custody of private keys
There may also be a need for secure maintenance of personal encrypted keys. Adopting blockchain technology would allow individuals and companies to have complete control over their assets and data, accessed through a set of private keys that must be kept secure.
Emerging technologies like decentralized key recovery will allow more and more individuals to secure custody of their own assets, thereby removing the artificial and expensive separation between legal and beneficial ownership in most asset markets.
Some will choose to take that responsibility themselves, but many investors may choose to outsource the custody of their private keys and token wallets to the companies and CSDs that can provide an independent and secure safekeeping service for these private keys.
2. Record of title for securities
CSDs could also be of value to record of title for securities. In many cases, the law mandates how title to property transfers. EU regulations state that for “any financial instrument to be transferable and tradable”(i.e. takes place on a trading venue, exchange or multilateral trading facility), securities must be recorded (registered) in book entry form in a CSD.
Under the current law, to enable having a blockchain-based system of transfer of title to securities, the blockchain would need to be the system that the CSD operates, which is not truly distributed.
Or one would need to create a new legal regime that recognizes that the transfer of title on a blockchain is effectively a transfer of title to the relevant property, and allows that in the context of securities trading. But that would take a lot of time to realise.
As a solution, the blockchain technology can be implemented through a hybrid model in which the CSD can either operate a blockchain platform itself to perform the book entry role. Or it can continue to perform this role off-chain, with the third- party blockchain platform accessing those records held by the CSD via an API (application programme interface).
3. Governance
CSDs could also play the governance role in a DLT based system – to ensure that what happens within their systems is unchallengeable. The movement from a post-trade system based around the existing infrastructure to a DLT-based system, without updating the regulatory and legal regime, could introduce a new systemic risk into the financial system. Regulators and legislators are unlikely to be comfortable in allowing the wholesale replacement of the existing infrastructure with DLT-based solutions.
CSDs are best placed to retain a ‘policing’ or governance role in a blockchain framework. This role should be the management of an insolvency of a party, particularly if there is a position that is not settled and the relevant contract is not yet completed. The involvement of CSDs in a governance and operational role could help increase trust of investors, and raise the quality of the blockchain ecosystem infrastructure underpinning these new asset classes.
4. Trusted gatekeeper: Authorisation and administration
CSDs could also be of help as trusted gatekeeper to DLT networks. While regulators will set the standards for admission to the network, the admission tests are likely to be administered by other parties. The most likely candidate for that role of trusted gatekeeper to DLT networks are the CSDs.
They are already the “first home of financial assets issued, and guardians of the integrity of every issue they accept”.
“The regulators are unlikely to want to immerse themselves in the operational details of the authorisation process.” “They will sub-contract that work to a trusted intermediary (read CSD).”
5. Other roles
A. DLT proxy voting system
One role in the post-trade environment that is already intensively investigated by CSDs is the management of a DLT-based e-proxy voting system. This would include providing general meeting services and give shareholders an easy, user-friendly and secure tool for voting remotely.
There is potential for improvement for instance in respect to the depots of voting rights. The system would automatically allow (or disallow) voting privileges for members based on what voting rights they had within a particular organization.
By using open source blockchain technology the efficiency and integrity of the Annual General Meetings and shareholder voting processes can be increased. Given that it is an end-to-end solution – from the time a meeting is announced and all the way through the voting process to the publishing of results – it means that all stakeholders will truly benefit within the process.
“By leveraging blockchain, we are able to reduce friction in the voting and proxy assignment process and also ensure that all information is transparent to stakeholders when required and with the proper security, governance and risk procedures in place.”
B. Elective corporate actions
CSDs could also have a role to play at elective corporate actions. Corporate actions recorded by the ledger may include paying out dividends, splits, issue of rights, warrants, pay-ups etc.
The user group for a permissioned blockchain network can choose who should validate these actions. They could simply give validation rights to every node. Getting issuers to publish elective corporate actions, such as rights issues and proxy votes, directly onto a blockchain, however might be a difficult step to realise.
Alternatively, this could be the role of a trusted third party, or a combination of both a trusted party and the nodes. This would imply a logical role for CSDs, creating a common registry of ownership associated with an ID.
C. Reconciliation
CSDs could also be of help in the reconciliation process. Blockchain may certainly help automate other components of the settlement process, such as reconciliation. A DLT-based reconciliation tool, with multiple trading firms participating in a record-based system, however could still occur within the CSD, which may act as the single point of reference for reconciling the various records.
D. Cross-border collateral mobilization
A final area where CSDs could play a role is in cross-border collateral mobilisation. Leveraging blockchain technology could overcome existing hurdles when moving collateral across various jurisdictions, making the transfer faster and more efficient.
“Designed to simplify cross-border collateralisation away from using multiple complex and non-standardised links towards smooth movement across various jurisdictions.”
By using CSDs it could enable a centralised, faster and more efficient allocation of fragmented security positions to cover financial obligations of market participants in multiple jurisdictions.
CSDs are likely to play an integral role but important role in any blockchain environment. Their role however will look quite different from we know them today. They can be the logical center of the system, custodying the standards, processes and governance of the system.
CSDs will have the opportunity to be agents of change. CSDs however need to adapt to meet new demands asking for delivering added value services in the new blockchain environment.
But they are not there yet! There is clearly a gap between the long-term opportunities presented by blockchain and the challenges involved in making progress.
Several blockchain initiatives in this area have failed, or are just ended their pilot stage or are very limited in scope. CSDs are also not currently building a single solution. Rather, each group is building its own platform designed to interoperate with the others.
There is thus urgent need to leverage existing business standards for the distributed ledger technology application in order to realise a global infrastructure that can smoothly operate cross border.
Economist and researcher