Blockchain beyond FinTech

Mark Buitenhek – Global Head of Transaction Services 20th June 2016 | Amsterdam

Vision from the banking industry

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Looking back on our journey so far, most of our efforts

have taught us about WHAT blockchain actually is

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In order to do that we had to start with the technology itself but quicklybridge between our “techies” and the business

Database that

allows us to share

ledgers.

Instead of

maintaining several

and having to

reconcile

information.

What did we learn from that conversation?

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What is blockchain technology in essence, why it is different and what we can do with it?

That gives us a full

system of record.

Maintaining a full

history of data it

gives us full

auditability at any

point in time.

That will always use

the same protocol

to validate whether

new entries are

correct.

This can guarantee

compliance upfront.

That can do more

than register

(historic)

transactions and

register future rights

& obligations.

Allowing us to

manage assets over

time.

And that can be

made smart enough

to execute business

logic.

Making it possible to

manage complex

situations through

smart contracts.

If distributed ledger technology allows us to share our ledgers, what business problem do we solve?

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What are the SHARED FACTS

of the financial industry?

Financial agreements: from

cash demand deposits to

derivative contracts or

delivery vs. payment

agreements

How are they currently being

registered and agreed upon?

Recorded by both parties

In different system

Based on (one-way)

messages

Incurring a lot of costs to fix

any differences

And what does a DLT have to

offer?

Consensus

Validity

Uniqueness

Immutability

Authentication

So we rather think of blockchain as a set of technologies & concept that can be applied to a specific case

Use case investigation

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So what have we done so far? We started, as many others, with experiments

Inter-bank ledgers

Smart contracts

Chains, fabrics and ledgers

Bonds

Interest rate swaps

Customer wallet integration

Payments rails

Commercial paper

Payment stack integration

Ripple

Ethereum

Trade

Securities

Payments

IdentityTrade

Financial markets

Clearing & settlement

Compliance

Chain.com

Intel

OpenLedger

BigChainDB

1. Lessons learned• Different blockchain implementations have different

limitations when it comes to scalability, confidentiality and

privacy

• More complexity = more potential benefits• We can’t bet on a single one of the existing chains just yet

2. Distributed ledger technology needs several more years to fully develop

3. Many “problems” that still need to be solved are not technical, rather mostly the industry needs to come together and agree on models, standards and sometimes regulatory change

4. Despite limitations to be solved before mass adoption, the technology can bring benefits already in targeted controlled situations

5. The end game however is to get industry wide adoption

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Technology has huge potential, but is also in its infancy

Our current efforts are more focused on HOW and

WHERE we will use this technology to leverage its

benefits

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Ultimately, like mobile, like the internet, and

like computers before that, Blockchain is not

the thing. It’s the thing that enables the thing.

Bart SuichiesDigital Strategy & Innovation | Blockchain / Healthcare / Enterprise, Philips Health

Where is the business problem?

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Blockchain technology is not a magic problem-solver, nor a one-size fits all solution!

Prioritize Collaborate Fail fast

So as a bank, what did we need and what steps did we take?

1. Find the business problemWhat problem are you really solving?

2. CollaborateWho do you need to create adoption, standardization and reach?

3. Experiment, fail and try againWhat are your most risky hypothesis and how to test them

4. Understand what is possible and what is not (YET)Recognize current limitations

5. Define the regulatory space you are in and start conversations early!

Having open conversations with other in the industry and openly share views with regulators

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To ING it is all about finding the business problem to solve, or opportunity to seize

Through exploration and experimentation we found several areas of opportunity from a business & technical perspective

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• Not (yet) suitable for high volume, low value processing of payments

• Showing potential for more complex international payment use cases regarding speed, costs and risk (transparency)

Transactions (payments)

• Fully digital, automated way to issue (digital) assets directly between parties

• Speed up processes, increase transparency & potential to remove third parties

• Reducing the need for paper-processes and automating hand-over moments

• Fully digital assets and transparent information enable secondary markets and new business models

Smart contracts

• Removing/reducing risk of reconciliation errors as well as the costs to fix them

• Fully transparent ledger and potential for instant clearing and perhaps faster settlement

Reconciliation, clearing & settlement

• Auditability, reporting and guaranteed compliance

• Process of providing evidenceCompliance

• Can play a role in managing access to identity information

• Providing a way to sign & certify digital identitiesIdentity

What specifically is the role of consortia?

1. Standardization – Avoid fragmentation

2. Permissioned vs. permissionless blockchains – Fit for purpose in the financial industry

3. Faster building of knowledge - Two know more than one

4. More and more collaborative initiatives (Hyperledger, SWIFT, .. etc)

5. In practice - Our experience with R3

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Besides recognizing the problems we want to solve, what else do we – as a bank – need to successfully leverage blockchain technology?

Fit for the financial industry – To permission, or not to permission?

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And other considerations

If we apply distributed ledgers in a permissioned environment this gives us the opportunity to make different choices.

Some of these choices are essential for financial services, like; Confidentiality and how to establish identity Modelling specific (complex) financial assets Which reference data to use Performance requirements (scale, speed, volumes)

On the other hand choices also mean that there will multiple different ledgers and technologies, so we also need to think about; Interoperability Standardization of contracts (so we can understand each

others contracts) Processes for dispute resolution of smart contracts

Collaboration across the industry is essential! Participating in consortia helps addressing these topics.

Working groups• Knowledge sharing• Addressing the “hard problems” • Long-running in-depth groups leveraging member banks’ & industry experts

A look inside…

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How a consortium works. Looking back on the first year of R3 DLG.

Projects• Driven by member banks• Delivering concrete use cases and working software in a short time• Can engage external parties

External engagement• Open source initiative – involved in the Hyperledger project, in favor of open-

sourcing technology• Regulatory outreach – actively engaging with regulators around the world

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Going forward will be all about WHO we are working

with and how to make industry-wide collaboration

really work

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1. Even if we still need to solve some problems, we strongly believe in its potential

2. We will see the first real pilots this year

3. ING is focusing on those cases where we can already bring customer value

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The industry – and ING – is moving from proof of concepts towards pilots

1. Business & IT collaboration has been essential from the start

2. To get the market moving we need to make connections on senior management level

3. We need to train our talents to understand the potential of this technology and come with a fresh view

4. Developing new skills to build (op top of) this technology goes relatively fast but needs attention too

5. Real expertise is scarce (cryptography) or hard to find

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As we move towards real solutions and realize the impact of this technology will be wide spread we need to start thinking about training more & more people

1. We are working hard on this technology and actively contributing to its further development for the financial industry. But this will take time!

2. Without wanting to go too fast, we do want to run several pilots before the end of this year

3. We hope to start engaging with clients in the short term

4. We keep on collaborating, as adoption is more valuable than speed

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Our promise

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