A: There are a lot of discussions taking place regarding exploring use cases like trade settlement and international payments. We see document/contract management in trade finance and OTC trades using blockchain being much more feasible near-term because the blockchain solution has fewer constraints, including speed, privacy and dependence on external parties.
Q: And at what stage is that interest? Are financial services firms still learning the basics, or beginning to experiment, or running proof-of-concepts?
A: It depends on the bank and region. Asian banks and Tier 3 banks are mostly in the learning phase. Tier 1 U.K./U.S. banks are closer to closed-loop pilots with internal IT systems. We haven’t heard of any bank going live at this stage. But most banks that are secretive about details are keen to advertise their attachment to this technology.
Q: In what ways is VirtusaPolaris working with financial services players to help them progress and accelerate their plans? What challenges are you seeing and helping to address?
A: By building our own blockchain solutions, we have developed immense capability in transforming a banking/financial product or service to a blockchain model. We also have in-house libraries and a sandbox that can greatly shorten the “time to market” for a closed loop blockchain proof-of-concept. We know the nuances of mapping current business processes to a blockchain model and what the constraints are.
The challenges we see include the following: lack of a mature blockchain product (IBM’s Open Blockchain’s vision seems comprehensive). Additionally, a lot of features have to be added as custom code (we have some of this). We are also aware of operational challenges in running blockchain (with fixes/workarounds); and finally, some blockchain use cases have greater dependency on the partners to be on the same path/journey, which may get difficult.
Q: You have created some demonstration applications that you are showing your customers and prospects. Can you say something about them?
A: We have built four applications: Trade Processing – Delivery vs. Payment or Bidirectional Asset Transfer, Proof-of-Document, Multi-sign Escrow Services and Interest Rate Derivatives Contracts using smart contracts. We have also built the plumbing code as reusable libraries so new use cases can be quickly developed using any blockchain product.
Q: What is your point-of-view on whether (and why) public or private blockchains will be used in financial services? Or will both be used?
A: Both are likely to be used. We have seen Overstock (t0) using the public blockchain for a bond issue. This is rational, given that it’s a stable, tested global system with a large use-base. A key point in applying it involves use cases in which privacy can be implemented. Public blockchain for Bitcoin is unlikely to be widely used by banks. Most of the interest is in private/permissioned blockchain. This private model is the manner in which most/all financial services operate today so it’s easier to accept new technology in this format. There is lack of clarity and skepticism of private blockchain in re-introducing some of the “centralist” models one wanted to do away with. But, overall, features like private/public digital signatures, distributed database, immutability and distributed apps have enough potential to bring in dramatic efficiencies.
Q: With regard to private blockchains, how would you comment on a view that while participants might know one another, they might not actually trust one another?
A: This view is both valid and common sense. There need to be checks and balances. Some key features in this regard are approval of transactions by a third party, consistency and non-mutable relationship between a block (in the blockchain) and its predecessor, and permissioning of nodes/participants in performing certain types of blockchain actions (such as approval and issue of assets). There is less risk of complex issues like spam, denial-of-service type attacks, etc. It’s unlikely that the participant will be fraudulent, but it may not do things correctly. With technologies like machine learning and AI also shaping well, trust can be monitored or enforced in other diverse ways.
Q: How do you expect financial services firms to progress with blockchain projects over the next 12 to 24 months? Will we see significant live applications in that time frame?
A: I think we will see a convergence of various areas in 24 months – better processing power, better bandwidth, mature blockchain products (with one to two leading brands), social behavioral changes on acceptable levels of privacy, and a couple of fintechs becoming mainstream. We are likely to see many live blockchain applications, but unlikely to see all financial/banking product features provided by existing non-blockchain systems. So the products and services will be basic (but hopefully reliable).
Q: And over that period of 12 to 24 months, what is your view on whether blockchain will become a significant business for VirtusaPolaris? What about in five years’ time?
A: Blockchain is going to be a significant business but only the nature of services will evolve. In the near future it could be more of pilots/PoC type of work, which will change to migration/integration kinds of projects. In five years we could be at a point where clients are moving from blockchain product A to B, because B is better. But overall, blockchain keeps IT federated yet centralized. This is likely to shake up the market with the need for IT services getting consolidated into fewer entities (something similar to how Salesforce killed CRM services) and, within financial companies, diverging IT and operations spend migrating to newer unknown areas.