Blockchain—A Disruptive Force in the Wealth Management Industry

Wealth management industry is one of the slowest industries to adopt smart technologies and Blockchain technology is no exception. Blockchain enables wealth managers to identify and recommend products to customers with precision. A number of firms are already employing dedicated resources to understand and integrate blockchain into their businesses as it has the potential to increase the industry’s basic value proposition—trust. According to a report by IDC, at least 25% of the Forbes Global 2000 companies will use blockchain as a foundation for digital trust by 2021. While blockchain has begun making waves in the wealth management industry, the unexplored domain is how it will transform the way the industry works.

What is Blockchain Technology and How does it Work?

Most people associate blockchain technology with Bitcoin and other cryptocurrencies, but truly speaking it is a tip of the iceberg. The blockchain is a subsequent innovation of Bitcoin. It is a technology developed with an intention to make cryptocurrency transactions secure and decentralized. This distributed ledger technology comprises an ever-increasing set of transaction data blocks that are verified by the members of the network, making the transactions confidential and secure.

Blockchain lets data reside in blocks with each block representing a fair number of transactional records. Each block is connected to its subsequent block via a chain element, essentially a hash function. As soon as a block is created, it is activated by a distributed network of systems (computers) and subsequently gets connected to another block (the previous one) in the chain, resulting in the formation of a chain of data/information blocks, termed as ‘Blockchain.’

Today blockchain technology presents opportunities for disruptive innovation. It reduces errors, eliminates redundancies in modern-day transactions, reduces operational expenses, and enhances customer experiences.

Wealth management industry—towards the blockchain breakthrough!

Blockchain technology has a number of use-cases within the wealth management industry. It can be used to remove friction from the client onboarding process, streamline the management of portfolios, speed the clearing process, ease the burden associated with anti-money laundering, and enable the wealth managers to know their customers. Even after providing a number of advantages, blockchain is unlikely to replace the current systems. They will only enable new processes or infrastructure and help wealth managers foray into new markets and new products.

According to Gartner—an enterprise technology advisory firm— blockchain technology might alter the wealth management value proposition for operations and streamline the client service operations. It will address the challenges of existing systems and will enable institutions and individuals to truly realize the full-fledged potential of the technology.

Below are some of the striking facts and statistics about Blockchain as a new phenomenon in the wealth management industry.

• Over the next five years, blockchain is set to grow by 43 percent in the wealth management industry
• The market giants are diving in to use blockchain technology to its fullest. Microsoft is providing Blockchain as a service by partnering with ConsenSys. They together announced ‘Ethereum Blockchain’ as a Service (EBaaS) on Microsoft Azure (the leading cloud computing platform) to provide their customers a smarter and robust cloud environment.
• Bitcoin is the most recognized cryptocurrency and makes up over two-thirds of the market capitalization of the top 10 cryptocurrencies
• The blockchain is expected to grow by 110% by 2020

What’s Next?

The success of blockchain technology rests on its distributed nature and the willingness of the firm to participate. However, many firms are shying away from taking this initial aggressive approach. In order to succeed in the wealth management industry, it is necessary to take the lead and begin the innovation process. Gartner in a recent survey has included blockchain in its ‘Hype Cycle’— a chart that depicts the adoption and maturation of emerging technologies (see the image below). The firm adds that nascent technologies in the wealth market will make their way through Research & Development to address the challenges in real-world scenarios. Blockchain can be treated as one of those.

Kellton is working with the clients on blockchain technology strategy development and impact assessments, use case identification, integration with operations, functions support, technology research, performance testing, and proof of concept creation and management. We are capitalizing on our Ethereum capabilities and Bitcoin understanding to build a Hyperledger-based blockchain for businesses.