How blockchain can build trust in the financial ecosystem

By | 3 minute read | May 21, 2019

Having grown up in a formerly communist country, I have seen how the whole society suffered from a lack of trust—of each other and especially of the authorities. I now see that same lack of trust within the financial services sector between users, authorities and other stakeholders. And I think technology can also disrupt trust. For example, do we trust our mobile device to send a payment? Do we trust the app? Do we trust a particular entity to perform certain actions on our behalf?

At BR – AG, we want to challenge that fear and distrust. I am personally passionate about building trust in the financial services sector and bringing it down to the regular, common user level.

Responding to financial sector distrust

We’ve observed numerous factors that destroy trust. These can be as small as an individual business behaving badly, or as widespread as market fraud. We’re talking about any unacceptable behavior and the transactions that follow from it. We see both outside factors that affect the larger financial ecosystem and its stakeholders and participants, and those arising from inside organizations. Our focus is on building trust within financial ecosystems by overcoming these factors.

Technology can be either a positive or negative disruptor. Today, blockchain is disrupting the sector in a positive way by changing and improving the model of trust. It proposes to remove the central authorities, depending on the type of blockchain solution applied. It changes the locus of trust by shifting it from an institution or authority, such as a central bank, to trust in an algorithm.

Advancing trust with blockchain technology

Expanding the use of blockchain technology in the financial sector will require market players to adapt. For example, regulators need to understand that they may not have the ability to supervise new markets built on blockchain as closely as before. Therefore, business organizations participating in a blockchain will need to demonstrate transparency to gain the same level of trust from the market and from regulators.

Our organization helps identify use cases where blockchain or other distributed ledger technology (DLT) solutions can improve trust and transparency in the market. Right now, we’re working with partner companies selected by the European Commission to advise them on which use cases might be facilitated by blockchain technology. We also evaluate the variety of different solutions available in the blockchain space and help match companies with specific technology solutions such as the IBM Blockchain Platform.

Advancing trust through collaboration

I think that building trust in the financial sector through the successful adoption of blockchain technology will require more collaboration among vendors, financial institutions and regulators. Standard-setting organizations and associations, including those in which BR-AG participates, can facilitate this improved collaboration.

For the financial industry to become an agile ecosystem, I believe we need the kind of thinking that pervades the software development industry. For example, they’ve created open source development platforms like GitHub, or project collaboration platforms like Jira. We don’t have that in the financial industry. We need platforms that will allow multiple participants to understand the flow of information from the beginning to the end of a process, so they can see impacts on specific risk, capital adequacy or liquidity positions, or whatever outcome that they are looking for.

We need this kind of agile ecosystem, specifically this kind of collaboration and platform, to really advance the technological frontier in the financial sector, and improve the trust between the regulators, players and financial institutions in it.

Listen to Michal Piechocki discuss how BR-AG is promoting greater trust and collaboration in the financial services sector with blockchain: