A platform based on truth and trust at the base of the digital revolution in the finance and insurance sector. The risk for companies is to approach this evolution from a partial point-of-view, either solely strategic or solely technological.
Blockchain is best-known for being the algorithm that forms the basis of cryptocurrencies and is often used synonymously with bitcoin. In reality, given its characteristics, blockchain can be used for a variety of non-currency related applications, but ones that are just as interesting because they impact on the agenda priorities of top management.
But how? What is the best way to introduce these technologies into the company? Unquestionably, it requires vertical technical expertise, but this does not represent everything and taken on its own could be misleading. The profound implications for business strategy would indicate a multi-disciplinary approach that puts technology-related aspects at the service of business assessment.
The risk for companies is to approach this evolution—which is rapid and whose developments are uncertain—from a partial point-of-view, either solely strategic or solely technological, neither of which, on its own, is sufficient to provide the information required by management.
The European House – Ambrosetti has dealt with this technology from its inception, creating a functioning blockchain designed to allow our clients to rapidly test their applications. By easing the technical aspect, attention can be focused on business opportunities and the various implications.
Blockchain is a technology that uses a software algorithm to register transactions, or any other digital interaction, in a safe and reliable manner.
In essence, this is how blockchain works: when a transaction occurs, a certain number of computers connected to the network verify the transaction.
The basic information of every transaction is logged (data such as the sender, receiver, time, asset traded and amount). Each new transaction is connected mathematically to all the previous ones so that the blockchain process can guarantee its validity.
Once included in a blockchain, the information cannot be canceled, therefore a blockchain contains an accurate and verifiable record of all transactions made.
Blockchain technology provides a transaction method that does not require third-party validation, therefore the prevailing logic is “trustless”.
In addition to cryptocurrency and payments in general, other areas of application for blockchain include:
All the areas listed above involve the three priorities of efficiency, innovation and security, with different impacts depending on whether the services are extended to customers or if they are limited to the company.
|Areas of extension/
(Innovation: product-service and/or process; Security: cyber security or process)
The type of impact each area of extension could have on the three priorities depends on the application perimeter (inside or outside the company), the goals and its technical characteristics, but it seems clear to us that, potentially, the capacity for innovation is such that it could result in a competitive scenario change for entire segments of the financial and insurance sector, with a different definition of reference markets, customers and competitors.
The sectors on which blockchain technology could have major impact are given in a Coindesk report (2016).
We are at the beginning of a phase of change, a pioneering phase in which experimentation in blockchain technology will grow rapidly in various fields and undertaken by numerous players, with uncertain results. The way in which some of the activities of the financial and insurance sector are currently offered and utilized is destined to change radically. Imagining what the transformations will be and how they will occur is, today, an ambitious and complex endeavor.
We believe that for organizations in the financial sector that need to adapt their IT infrastructure to growing pressure from the regulatory body and cyber criminals and, perhaps above all, from the challenge set by digital development and use of their services, the blockchain represents a significant opportunity.
Seizing this opportunity requires both rethinking and redesigning some business processes, and enabling new technologies. And all within the context of major uncertainty that also characterizes regulatory bodies which are clearly experiencing difficulty in formulating so quickly the guidelines and policies they need to adopt.
Our experience would suggest an incremental approach; in other words, we propose the development of small-scale projects in controlled environments, within the perimeter of the company. By making available to them a blockchain infrastructure that is functional and coherent with their specific needs, we help our clients to remain technologically up-to-date and maintain the flexibility required within a rapidly-changing environment.
This flexible and prototypic approach lowers risk and develops technical know-how and method to elaborate strategic approaches involving:
Partner, The European House - Ambrosetti