The reasons U.S. blockchain adoption has stalled
Enthusiasm for blockchain technology in the financial services industry seems to be ebbing.
JPMorgan Chase, which developed its own open-source distributed ledger, Quorum, was rumored on Thursday to be spinning off the Quorum unit into a separate company.
Unnamed sources told the Financial Times that “some rival banks may have been reluctant to use Quorum because it was so closely associated with JPMorgan, leading the U.S. bank to conclude that its chances of becoming the industry standard were greater as a standalone entity.”
JPMorgan Chase declined requests for an interview. A spokeswoman did not deny the report but defended Quorum and reiterated JPMorgan’s commitment to the underlying technology.
“We continue to believe distributed ledger technology will play a transformative role in business, which is why we are actively building multiple blockchain solutions,” she said. “Quorum has become an extremely successful enterprise platform even beyond financial services, and we’re excited about its potential.”
The bank shared a list of projects in the works based on the Quorum technology, including the Interbank Information Network it announced in October.This is an initiative in which it’s working with Royal Bank of Canada and Australia and New Zealand Banking Group to use blockchain technology to handle global payments.
In another example, ING is working with the global merchant Louis Dreyfus Co., ABN Amro and Societe Generale to create a Quorum-based blockchain for agricultural commodities. The companies say they have already handled a shipment of soybeans from Louis Dreyfus to the Chinese buyer Shandong Bohi with no paper contracts, certificates or manual checks — at five times the speed of a paper-based trade.
There are a few other scattered examples of blockchain projects in the financial services industry.
Northern Trust a year ago developed a distributed ledger based on the Linux Foundation’sHyperledger Fabric that handles private-equity deals in Guernsey, one of the Channel Islands. So far, one Swiss client is using it. The bank says this is on purpose, as it is still building out additional features for the platform.
The Depository Trust & Clearing Corp. is working to put its credit default swap warehouse on a distributed ledger based on Hyperledger Fabric starting in the first quarter of 2019.
“If anyone is going to disrupt DTCC in the future, it’s going to be us,” Michael Bodson, CEO of the DTCC, said at the group’s Fintech Symposium on Thursday. “That’s why we’ve taken the lead in advancing the use of distributed ledger technology.”
The group is also working with Digital Asset Holdings and R3 to figure out where their technologies might make sense for the various things the DTCC does.
Otherwise, blockchain activity in the banking industry is hope, talk and proofs of concept, but little in live production mode.
When asked about their top concerns about blockchain technology, bankers and capital markets executives in attendance at the DTCC’s symposium cited lack of an obvious business purpose, uncertainty about how much the technology will cost, and interoperability issues among the major biggest stumbling blocks.
Lack of a clear business case. “I think [return on investment] kills a lot of innovation projects right out of the gate at a big bank,” said Grainne McNamara, principal at PwC. “People are looking for ROI before you even have a sense of what you even have. How can you calculate ROI when you don’t really know what you have?”
However, banks’ discretionary budgets are beginning to open up again a little, she said.
