Ready or not, here comes blockchain

While some are bullish on strong use cases for the in­dus­try, oth­ers are still skep­ti­cal about when—or even if—cus will be will­ing and able to dive into blockchain.

Credit Union Journal - - Front Page - BY W.B. KING

TWO BIG BLOCKCHAIN PART­NER­SHIPS in the credit union space were an­nounced re­cently, but the ques­tion is, are CU ex­ec­u­tives fi­nally pre­pared to do more than just dip a toe into dis­trib­uted ledger tech­nol­ogy?

The Na­tional As­so­ci­a­tion of Fed­er­ally-in­sured Credit Unions be­came the first U.S. fi­nan­cial trade as­so­ci­a­tion to join Hyper­ledger in Oc­to­ber. Just days later, Culedger — a con­sor­tium sup­ported by the Credit Union Na­tional As­so­ci­a­tion and the Moun­tain West Credit Union As­so­ci­a­tion — an­nounced it is work­ing with Swirlds, the cre­ator of the hash­graph dis­trib­uted con­sen­sus plat­form.

De­spite these big an­nounce­ments, some re­main skep­ti­cal about the credit union ap­petite for blockchain tech­nol­ogy.

“NAFCU’S en­dorse­ment will draw at­ten­tion and in­crease aware­ness of blockchain de­vel­op­ment within the CU in­dus­try, which may even­tu­ally en­cour­age adop­tion,” said Jack Henry & As­so­ciates Credit Union Spe­cial­ist and Se­nior Strate­gic Ini­tia­tives An­a­lyst Ni­cole Harper. “How­ever, we don’t see any clear use cases of Hyper­ledger in the CU space today.”

Harper said the Lin­den­hurst, N.j.-based Jack Henry & As­so­ciates, which serves ap­prox­i­mately 2,400 credit unions, has seen “a rel­a­tively slow evo­lu­tion of blockchain” in the credit union en­vi­ron­ment.

“Most FI ap­pli­ca­tions are de­vel­op­ing in three ar­eas: cap­i­tal mar­kets, com­mer­cial and in­ter­na­tional pay­ments. There is not cur­rently a big de­mand for these func­tions among most credit unions,” she said. “There is a need among credit unions for some con­sol­i­da­tion into con­sor­tium play­ers, giv­ing smaller in­sti­tu­tions with lim­ited re­sources some economies of scale.”

In order to gain mass adop­tion, Hyper­ledger, an open source col­lab­o­ra­tive ef­fort cre­ated to ad­vance cross-in­dus­try blockchain tech­nolo­gies, re­quires the sup­port of var­ied com­pa­nies in lead­ing in­dus­tries.

As of Novem­ber 2017, Hyper­ledger counted more than 170 in­ter­na­tional or­ga­ni­za­tions from mul­ti­ple in­dus­tries as part­ners.

THE KEY: CON­SUMER COM­FORT

As with most new tech­nolo­gies, blockchain will be­come vi­able when con­sumers feel com­fort­able with the medium. To this end, the Geneva, Switzerland-based Sophi­atx is of­fer­ing the first plat­form that fo­cuses on in­te­grat­ing blockchain with SAP and other ma­jor enterprise risk planning, cus­tomer re­la­tion­ship man­age­ment and sup­ply chain man­age­ment sys­tems.

“We be­lieve that to truly set up new ecosys­tems with peer-to-peer busi­ness re­la­tion­ships, a pub­lic blockchain is su­pe­rior over any al­ter­na­tive,” noted said Jaroslav Kacina, CEO of Equidato Tech­nolo­gies AG, the com­pany be­hind Sophi­atx. “With blockchain, most of the dis­rup­tion comes from new en­trants into the ecosys­tem.”

“Blockchain burst into gen­eral aware­ness through Bit­coin, but blockchain tech­nol­ogy’s in­flu­ence is ex­tend­ing far be­yond that start­ing point,” said Lionel Palacin, tech­nol­ogy evan­ge­list for the Paris, France­based tech firm Boni­ta­soft, adding that FIS are drawn to the speed and se­cu­rity of the tech­nol­ogy.

A re­port by New York City-based con­sult­ing firm Mckin­sey & Com­pany sur­veyed 200 com­pa­nies and found 64 dif­fer­ent use cases for blockchains—with use cases for fi­nan­cial ser­vices mak­ing up about 50 per­cent of the mix.

Palacin said it’s not that credit unions aren’t see­ing the busi­ness case for blockchain, but rather they are “try­ing to make a sound choice” in a more “global dig­i­tal trans­for­ma­tion” strat­egy.

“The pri­or­ity today for them is to im­prove their mem­ber ex­pe­ri­ence, pi­lot their busi­ness by mak­ing in­formed data-driven de­ci­sions and be in a po­si­tion of in­no­vat­ing quickly by hav­ing in place an ap­pli­ca­tion plat­form that al­lows them to make quick changes,” said Palacin. “In that con­text, the ad­di­tion of a new tech­nol­ogy like blockchain as an en­try cost and risk as­so­ci­ated might be too sig­nif­i­cant for smaller struc­tures and not make sense for them in the im­me­di­ate fu­ture.”

In­deed, the real chal­lenge, ac­cord­ing to Jack Henry & As­so­ciates Head of Re­search and Di­rec­tor of Strate­gic Ini­tia­tives Ron Mazursky, will be de­ter­min­ing which use cases—as well as which ap­pli­ca­tions and providers—will stand the test of time.

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