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Blockchain beyond Fintech #DBC16

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ING's vision on Blockchain shared by Global Head Transaction Services ING Mark Buitenhek during the Dutch Blockchain Conference

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Blockchain beyond Fintech #DBC16

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