Clifford Chance

Clifford Chance has participated in the research on inventions, investments and projects that relate to blockchain technology, at 234 major financial institutions around the world carried out by MINDSMITH. The authors of the study have identified global and regional trends at financial institutions by analysing 515 projects, 367 patents and 88 investment deals.

Download the report. 

“Today, financial institutions are under tremendous pressure: the needs of their clients are changing with the arrival of the 'digital generation', complying with the rules for doing business means ever greater costs and innovative fintech projects are laying claim to a significant piece of the pie. Financial institutions understand that they have to change. The changes that are needed could not only affect their product offer, they could lead to an overhaul of the very roles that these institutions play. We can't get a look behind the scenes at financial institutions' R&D departments, but we can, from various indirect signs, draw inferences about where these structures see themselves in 5–10 years. In terms of the digital transformation, we can, basically, see some of the scenarios through which that's going to take place. They can develop their own solutions, buy them in or acquire a company and, with it, its solutions and experience. We based our analysis of how major global financial institutions are working with blockchain technology on these three scenarios. In this study we discuss what financial institutions' attempts to 'reinvent' themselves might lead to: the new roles they might play, what markets might appear and how the landscape might change in terms of power in the financial sector.” – Ruslan Yusufov, managing partner, MINDSMITH.

“In the last couple of years, the majority of institutions have left behind their scepticism about blockchain technology and are now really mobilising to search out the advantages to be had from it and the best possible solutions for its practical implementation in business and daily life. Although legal regulation of blockchain-based products and services has not kept pace with the development of the technology itself, such regulation does already exist in some form or another in a lot of developed jurisdictions. The vast scope for application of the blockchain and the value of its application in the ongoing digitalisation of the modern world are now clear for all to see, although the degree to which its potential is realised will depend on an array of factors, including what regulatory requirements have to be met. In this study, we talk about the potential legal problems that a developer of blockchain solutions might come up against.” – Alexander Anichkin, partner, Clifford Chance.

Expert research panel:

• Ainur Zhanturina, Head of the FinTech Competence Centre of the Astana International Financial Centre
• Alexey Arkhipov, CEO, QIWI Blockchain Technologies
• Anatoly Konkin, Head of Development of Distributed Ledger Technology, FinTech Association
• Herbert Shopnik, Director of Business Development, S7 TechLab
• Oleg Shibanov, Director of the FinTech and Digital Economy Research Centre, Skolkovo-NES

Key findings of the study:

Global tendencies and future business models

• Financial institutions' interest in the blockchain is not waning but they are changing the format for their interaction with the technology.
• Banking institutions are building blockchain solutions in the sphere of data security, which could lead to a situation in which, rather than using outside providers, they themselves enter the market as vendors of data security solutions.
• Fintech services providers are working intensively on alternative payment systems based on blockchain technology, which is opening up potential for providers of infrastructure platforms for interbank channels for the exchange of digital assets.
• Insurance companies are experimenting with smart contracts and concepts of self-sovereign identity and they see considerable potential in the tokenisation of identity data. This is creating a space for a multi-sector integrator for these systems.

Leaders

• The leading financial institutions working with blockchain technology include Mastercard, Visa, JPMorgan Chase, China Merchants Bank and PayPal.
• The average annual growth rate in the index for financial institutions' interaction with blockchain technology from 2014 through 2019 was 168%. Practical implementation of the technology is growing at the rate of 144%; the patenting of blockchain inventions – 226%; and investment in blockchain companies – 145%.

Main formats for interaction

• The main format for interaction between financial institutions and blockchain technology is practical implementation. The vast majority of financial institutions investing in blockchain or patenting their blockchain-based inventions are those that have already implemented blockchain solutions and have set themselves on the path of applying this technology.
• Key objectives in use of blockchain technology: reducing the need for trust amongst interested parties, creating a secure system for exchanging assets, simplifying communication, increasing transparency and making auditing easier.
• Popular areas for blockchain technology application: creating architecture and protocols for new blockchain systems and using blockchain systems to process transactions and manage data.
• Solving data security problems in interaction with the blockchain is the top priority.

By geography

• It is financial institutions in the US, China, Japan, France and Canada that are working most intensively with blockchain technology. The US is dominant in this market. All the indications are that we can expect competition to heat up between US and Chinese financial institutions when it comes to blockchain use.
• US financial institutions are the most active in patenting their blockchain inventions, whilst Japanese financial institutions are investing intensively in blockchain companies.
• Chinese financial institutions tend towards both patenting inventions and practical implementation of the technology.
• Traditional financial centres like Switzerland and the UK were found to be lagging behind in their work with the blockchain.

By industry

• Banks are leading the way in interaction with blockchain technology and are the most active in terms of implementing blockchain solutions.
• Payment systems and fintech services providers prefer to patent blockchain inventions, whilst the potential of the largest payment systems to become vendors of blockchain infrastructure platforms raises the question of the future position of providers of blockchain platform solutions like Microsoft, IBM and SAP.
• Insurance companies are not patenting blockchain inventions as intensively and prefer to invest in blockchain companies and use the blockchain in practice. If insurance companies become the drivers for mass adoption of out-of-the-box blockchain solutions, the 'blockchain revolution' will swiftly spread to related industries, such as medicine and logistics.
• Companies that work with securities are focusing on investment in blockchain companies; diversified financial institutions, however, tend toward patenting blockchain inventions as well as investing in blockchain companies.

The study is intended for a broad readership.

This report will be useful to anyone who is interested in developments in the use of the blockchain in traditional sectors or has an interest in new digital technologies and business models, in particular in the context of financial institutions.

We want this study to stimulate a conversation about financial institutions' application of blockchain technology, including on independent forums, in order to advance the holistic development of this technology in Russia and throughout the world.