The blockchain problem is a trust problem

February 6, 2017



Is 2017 the year that financial consumers, leaders, and regulators begin to embrace the technology?

We saw a lot of changes in the blockchain space in 2016. Nearly every major financial institution was actively researching, coding proof-of-concepts, and looking for talent. They weren’t the only ones. Our DeNovo strategy platform tracks more than 150 blockchain-specific companies across 24 industry subsectors. Clearly, the technology has a lot of promise and a wide range of uses. Yet despite the growing interest, we still aren’t seeing widespread adoption.

What would it take for blockchain to be fully adopted across the financial services industry? We believe the simple answer is trust. Consumers, regulators, and industry leaders remain a bit skeptical of blockchain—as they would be of any new technology. This is changing, and 2017 could be the year it happens.

Consumers don’t trust it yet (but they will soon)

We’re not at the point yet where consumers fully understand blockchain. There’s just too much white noise in the marketplace. Blockchain seems complicated, and it involves trusting peers in the network to validate one another’s transactions in a way we have not seen before. On top of that, much of society still associates blockchain with Bitcoin’s challenging past. Business-to-business and business-to-consumer users need to trust that their data will remain safe, and right now many remain unsure about extending that trust to blockchain.

Still, experts agree that blockchain could revolutionize the way we protect consumers. It isn’t just safe. It has the potential to drastically improve security and transparency. As with any new technology, skeptics are everywhere. But as more people begin to understand how blockchain works, we’re confident that 2017 could be the year we will see the benefits.

Regulators don’t trust it yet (but they will soon)

Like consumers, regulators need to trust that blockchain doesn’t compromise the safety and soundness of the financial system or the protection of customer assets. Some regulators trust the technology, but many are still trying to get their heads around what it means.

This could be the year that changes as regulators gain confidence that blockchain technology lends more transparency to financial transactions without compromising security of consumer information. At the end of 2016, the Federal Reserve published a research paper acknowledging blockchain’s huge potential. While the Fed highlighted a number of issues that need more scrutiny, it recognized that blockchain could offer an improvement over existing systems. If other regulators are persuaded as the technology progresses, this could encourage the industry to embrace it on a broader scale.

Industry leaders don’t trust it yet (but they will soon)

FinTech firms are embracing blockchain technology. But the financial services industry needs to be able to trust that the innovative products coming from the FinTech space can be turned into viable commercial models on an enterprise scale. In their initial experiments, financial institutions haven’t always been willing to expose their most valuable use cases. It’s not that established financial services firms feel threatened. Indeed, many appreciate how startups can shake things up and spawn innovation. But there remains a disconnect between established firms and FinTech that can be solved only if these two players trust each other and the technology they’re creating together. Blockchain is incredibly collaborative, and it simply cannot reach its full potential without cooperation from multiple firms.

We believe that 2017 could be the year for financial institutions and their startup FinTech counterparts to come out of the pilot or pre-production labs and find real commercial production applications. To do this, they’ll need a common understanding about terms, processes, roles, responsibilities, governance, risks—all the infrastructure that makes partnership possible. This is a change management issue, and there is a lot of work to be done. But the business opportunities are compelling for both sides, and we expect to see them join resources and share knowledge to launch blockchain as a mainstream technology.

Trusting the trade

Consider trade. Companies turn to trusted intermediaries when they don’t fully trust their trading partners. Transactions can involve a lot of manual intervention and an illegible signature can lead to costly delays. One company we know decided to break down the trust barrier by using blockchain to streamline trade finance. The company simplified the process from more than a dozen steps to just a few, and it cut the time down from a week to a matter of minutes. With a solution that offers faster turnaround, lower counterparty risk, and more audit transparency, it’s easier for companies to build trust with their trading partners. This is just one example of how blockchain can build trust by driving digital transformation and creating new efficiencies.

Crossing the trust threshold

New technology always faces a trust barrier: Will electricity burn down my house? How can I trust that the ATM will count my money correctly? But when they make sense, innovations reach a trust tipping point that leads to broad adoption. Blockchain makes sense, and this could be the year that we build that trust.

Read more about blockchain and other top issues in financial services. Learn more about industry news by following @PwC_US_FinSrvcs on Twitter.



Chris Curran

Principal and Chief Technologist, PwC US Tel: +1 (214) 754 5055 Email

Vicki Huff Eckert

Global New Business & Innovation Leader Tel: +1 (650) 387 4956 Email

Mark McCaffery

US Technology, Media and Telecommunications (TMT) Leader Tel: +1 (408) 817 4199 Email