I recently hosted a Women in Investment networking meeting, where our focus was on understanding blockchain and the impact on financial services. Helen Oxley, Solutions Director at SEI kindly came to share her knowledge and expertise with us.
My key learns were:
- To understand the impact of blockchain you need a strategic view of the future advice landscape.The old customer journey is dead; our lives now rarely follow a linear journey of education, job for life, buy house, get married, have family and save for a rainy day.Circumstances have changed and we now live in a more flexible world with multiple career changes, later life education, sabbaticals, starting and selling businesses. The 4th industrial revolution encompassing artificial intelligence (AI), robotics quantum computing, 5G etc., not only means that our industries need new skills, but our finances also need a more flexible structure in terms of borrowing, lending, saving and investing.
- ‘Driverless finance’ is therefore a way of delivering these new client journeys, supported by technology such as AI and blockchain, enabling advisers to build strong businesses supporting a greater number of clients than they do currently and with less risk.
- Our financial journeys will become increasingly unique. We will each leave a digital footprint that will enable providers to bespoke and personalise their solutions. For example, we could see lending against an individual’s specific risk, and providing insurance and lending against a more granular set of criteria.
- The investment sector will also be included in this disruption and technology will force advisers and wealth managers to engage differently and advisers can use AI and robotics to do the heavy lifting. Data will not only be critical for providers but also to support personalised wealth advice and for discretionary managers to use data to construct tailored solutions for clients on platforms.
- Platforms will split themselves into back and front office, where the processes will become increasingly efficient and uniform. Differentiation and therefore competition will all occur in the front office.
- Blockchain contributes to the efficiency of processing in the back office. At its simplest, it’s a piece of code that automates the complexity of a financial transaction, e.g. money transfers, trades. This means the middle men can be cut out, thereby reducing time, costs and risks. The transactions are captured as records which are added to a block. These blocks are sequentially added to previous blocks to form a chain and is essentially like adding new pages to a ledger. These pages have their own secure digital ‘fingerprint’ which links the blocks together.
- A benefit is that once a block has been created, it can’t be changed without all other participants in the block being made aware – hence they are ‘fraudulent proof.’ Bitcoin has been susceptible to fraud, but it’s important to make the distinction that the blockchain technology underpinning it has not. If used well, blockchain can enable secure solutions.
- A blockchain can be shared instantly with one, some, or all parties on the network. No central party is required other than to provide the blockchain software but they don’t control permissions to read and write data.
- The key benefits to advisers and clients are speed of transaction processing, security and technology which can support new customer journeys previously not available in electronic or digital format.
- The challenges to blockchain are competition, regulation, and development of standards, industry buy-in and investment. However, if the industry collaborates and embraces blockchain technology, as is already happening to some degree, transformation and efficiencies will result.