PwC Blockchain Market Research: Application Potential and Key Trends

“The key idea that we want to express is that blockchain is an evolutionary leap in the development of business process optimization technologies. Decentralized distributed databases provide market participants with such opportunities to change the appearance of the financial sector, which, as a rule, appear only once a generation. ”

Such a conclusion regarding blockchain and related technologies is made by the reputable international company PriceWaterhouseCoopers in its large-scale study of the fintech market, conducted this year. We at WirexAs a financial services provider using blockchain and without banking intermediation, we hold the same point of view. In the course of the study, PwC conducted a large survey, which involved 544 heads of large financial institutions and their divisions from 46 countries. The survey showed that 56% of respondents recognize the importance of blockchain technology, but 57% of participants admitted that they currently do not have a clear idea of ​​how their companies should respond to the opportunities that it provides.

PwC experts believe that despite its promise, the blockchain still encounters many obstacles and challenges. This can largely be explained by a lack of understanding of technology from financial sector players. Eighty-three percent of respondents said they knew her in general terms, and only 17% of managers said they knew her very well (15%) or called themselves experts in the field (2%).



At the same time, as the authors of the study note, "understanding the blockchain and its commercial capabilities requires a clear idea of ​​how to connect together the most diverse, often in no way overlapping areas of knowledge." And the lack of such an understanding, in their opinion, leads to the fact that "market participants risk underestimating the potential impact of the new technology on their core business."

The highest level of awareness is noted among payment companies, and other institutions involved in fund transfers. Thirty percent of survey participants working in this area said they were very familiar with the subject.

Like many other experts, PwC experts also noted the speed with which this area of ​​activity is undergoing changes: “Blockchain is developing and spreading at an unprecedented speed. To turn from a startup idea into a mature technology, it took him only a small part of the time that the Internet or personal computers needed to become familiar to everyone with attributes of everyday life. ”

Technology Potential

The authors of the study believe that the spread of blockchain could lead to a radical change in the competitive landscape in the financial sector. Current profit funds will be redistributed in favor of the owners of new efficient blockchain platforms.

PwC experts highlight the following positive opportunities related to the practical use of blockchain:

1. Facilitating access to financial services for people in developing countries

Billions of people around the world are denied access to banking and currency exchange. We already wrote in our blog about examples of how new financial technologies can completely solve this problem.

2. The emergence of new startups and companies

Blockchain startups appear at an unprecedented speed. The number of ideas is great, but they themselves are diverse. According to PwC, the market has more than a thousand players, both new and already established, and this figure is only growing.

As examples of other interesting startups, PwC cites the Coinbase cryptocurrency exchange , which helps its customers sell and buy cryptocurrency, store digital assets and protect them from theft. Libra helps corporations keep records and analyze and audit operations with digital assets, regardless of which blockchain base they use. Companies like Blockstream , Digital Asset Holdings and itBit simplify digital asset management for financial institutions, and the experience of Eris Industries, a provider of so-called smart contract solutions, is used by PwC itself as part of its integration into an existing client business.

3. Improving accounting practices

Blockchain offers the opportunity to create a distributed, transparent, practically real-time ledger, which can be used to analyze data and confirm their authenticity. The use of blockchain in this way reduces the time and effort spent on synchronizing (reconciling) data between different computer systems, and opens up the possibility of integrating company accounting with many external sources of information.

4. More flexible cash management

An increase in speed and the possibility of instant notification will reduce the amount of money and other collateral assets that the bank needs to hold in order to reduce the risks of mutual settlements with other banks and financial institutions. The transparency of technology also contributes to this, as it increases the level of partners' trust in such systems.

5. Improving interaction with financial regulators

The presence of a central, unchangeable and transparent base of operations will allow auditors and regulators to quickly and in real time monitor the flow of financial data, eliminating any need for double-checking data ex post.

6. Improving the quality of daily financial transactions

New types of brokerage accounts based on smart contracts can exclude mediation and provide an opportunity for participants in stock, currency and other markets to work directly with each other. It is possible that some functions, such as messaging, clearing and settlement, performed by SWIFT, central banks and payment networks, will be carried out directly by automated exchanges. Even the release of new assets can be carried out on the basis of the blockchain.

7. Smart contracts

PwC calls them one of the most relevant ways to apply the new technology. Smart contracts are rule sets written using software code that operate on the basis of a blockchain database. The scope of their application is believed to be very wide: from the simple organization of voting during the discussion to more serious tasks, such as pledging, creating futures contracts and even prioritizing payments on structured financial products.

Key blockchain market trends in 2016

In addition to the survey, PwC also closely monitors developments in the market and analyzes the activities of individual companies. In total, according to the company, its experts examined more than 1 thousand startups related to the blockchain, and also conducted a financial and technical examination of a group of similar companies, devoting more than 10 thousand hours to this activity.

In order to provide players of the financial sector and other participants with a full picture of how the financial technology market looks now, PwC has launched a separate analytical platform called DeNovo , which is dedicated to researching the impact of technology on the financial sector.

In the field of blockchain technologies, the company's experts counted more than 700 new market participants, 150 of which deserve close attention, and 25 of them have the potential to become market leaders. Based on the available data, the company identified three main trends in the development of the blockchain segment, which, in its opinion, will be clearly visible in 2016.

Trend No. 1. Proven market participants will focus on protecting intellectual property.

Companies whose activities are somehow related to the fintech market are probably already considering options for integrating blockchain into their business. Authoritative players like banks or exchanges are looking for ways to improve the quality of all the services and products they provide. At the same time, startups and service providers who understand blockchain technology are looking for the best ways to complement these business processes. In 2016, PwC encouraged traditional financial institutions to engage in such a dialogue in order to gain a better understanding of what intellectual property they would have to share with other players.

From a technical point of view, many market participants are already working together on the implementation of certain developments. Nevertheless, strategic and business partnerships clearly do not fit into such an open interaction model. Based on this, traditional financial institutions should form a fundamental technical understanding of the issue, since it will help to better determine what information should be shared in open forums and which should be kept confidential.

Trend No. 2. The adoption of risky technical decisions should be based on the strategic plans of the company.

In 2016, more and more new players will come to the market and enter into competition with participants who have already settled there. As a result, financial institutions will be faced with a huge selection of cooperation options. In 2015, many participants began to openly talk about their innovative ideas related to the blockchain. Nevertheless, other companies that did not make such statements all this time also worked on creating their own technical solutions. This allows us to assert with confidence that this year the market will reap the benefits of these investments. Considering the available options, financial institutions will face a new problem that needs to be solved: assessing the prospects of cooperation with various fintech partners.

Companies wishing to develop concept verification projects, pilot projects or even make direct investments should understand what financial position their potential partners take and what their strategic goals are. In the current situation, it is impossible to determine who will survive the next round of financing, but PwC indicates that there is a difference between successful startups and those who have practically exhausted financing or will soon be acquired, and companies that want to succeed should be able to see it.

Ultimately, PwC encourages companies to develop strategic plans that will help set specific parameters and criteria for selecting projects and partners, as well as determine the general direction of investment.

Trend No. 3. The emphasis on the development and testing of blockchain projects will shift from operational activities to the elaboration of related procedures.

In 2015, the market devoted the lion's share of its attention to solutions aimed at testing the concept at the level of operations. This year we will see how the emphasis is gradually shifting to supporting a new level of systems and processes that will be based on previously proven and successful operational solutions.

This means that if earlier the main question asked by financial institutions was: “How can we use blockchain for our own purposes?”, Now a new question will be relevant: “How to build other blockchain-related processes in such a way as to get from its use maximum benefit? ”; or another, even more important: “What impact will these new processes have on our risk profile?”

In this sense, the company recommends that market participants pay special attention to such areas of activity as management organization, auditing and information security.

The main patterns that should be guided in 2016 and in the future

The benefits of new technologies are rarely evenly distributed among market participants. In other words, there are always winners and losers. Thus, it can already be said that many players will not receive the business benefits that they expect to see from the advent of new technologies.

PwC experts consider the following scenario possible: technically savvy market participants will establish strategic partnerships with small groups of other advanced players (micro-consortiums). This will allow them to focus on the transformation of expensive internal processes and offer the results of this work within the framework of effective public platforms. Such platforms can subsequently be sold as services to smaller competitors.

The ability to build collaboration with a small group of key partners at the level of strategy and business, according to PwC, may be the key to gaining a competitive advantage over the next few years. In general, all participants in the financial sector should take an active position in terms of responding to emerging threats and new opportunities that will arise along with the spread of technology.

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