New global research conducted by analyst house* Ovum, reveals that ledger technology is set to become the de facto structure for some capital market infrastructures. But in other areas of financial services, as in other sectors, adoption of the technology will take far longer or it may not be applicable at all.

Coming into public prominence through the Bitcoin cryptocurrency, blockchain technology has undergone a rapid sequence of claim, counterclaim, hype and disappointment. Alongside this, there is a big promise of it delivering significant cost-savings, mainly through improved automation and operational efficiencies. This has led to a range of development efforts that, in some parts of the financial industry at least, look set to deliver strong results: Ovum’s ICT Enterprise Insights study revealed that 24% of banks are looking at ledger technology as one of their top three initiatives in corporate and transaction banking.

“Early hype claimed that ledger and blockchain technology would transform all areas of financial services,” states David Bannister, Principal Analyst, Financial Services Technology, Ovum. “This was followed immediately by counter-claims that it had no applicability at all. Unsurprisingly, this led to a general agreement that the technology is not a magic formula to solve all of the financial industry’s issues, instead finding that blockchain is suited to specific use cases.”

In sectors where there is an existing marketplace or network work of trading partners, such as the post-trade processes involved in the clearing and settlement aspects of capital markets, the ledger could be deployed very quickly. The shared data it produces could be stored in the cloud, leading to immediate cost benefits. Regulatory bodies also see this as an opportunity. The introduction of ledger technology will radically improve the efficiency of their supervisory processes, ensuring that rules are followed.

“For those areas where there is applicability, the technology also offers financial institutions the opportunity to streamline their operations through closer collaboration with their peers and partners on standardising market practices and the adoption of shared, automated workflows and processes,” says Bannister.

Bannister concludes: “There is great potential for blockchain in some defined areas of the financial industry, but , there are obstacles to overcome and some elements of the sector that is is unsuitable for. Fundamentally though, it is an enabling technology, like the internet or mobile telephony. The measure of its successful adoption will be as it ‘disappears’ in the future, becoming an integral part of some technology platforms or abandoned as inappropriate in others.”