So, I’m presenting at a Corporate Treasury event, and we get into talking about distributed ledger technology (DLT) and blockchain. Comments are made around so many tests and proofs of work and concept, but so little production. At this point, someone made the comment that it will happen from the ground up, as corporates start working together to define standards around KYC for example.
I disagreed with this statement, as most corporate treasurers are notoriously bad at co-ordinating with each other, particularly when it comes to treasury standards. My view on this was formed by working with TWIST. Now I’m not having a go at the people behind TWIST, who are very nice folks, but it’s incredibly hard to get the corporate treasury community to work together because they all have different motivations and interests. There are few shared interests and, for all the energy that was poured into the not-for-profit organisation, it kind of withered on the vine through lack of commitment.
This will make it very hard to create a corporate treasury distributed ledger for KYC or anything else, unless banks give it to their corporate community. Now, that’s something that SWIFT would be a core part of, but SWIFT recently dropped their DLT for nostro project. There’s a very good analysis of that project by Arunkumar Krishnakumar if you want to learn more, and the key statement he makes is that, for DLT to work with payments on the SWIFT network, “all Nostro Account service providers will need to migrate their back-office liquidity reporting process from Batch to real time processing. ISO 20022, will need to be applied across banks to ensure data shared across different banks has consistent data elements. Such a common data model is essential to reduce integration costs.”
Wow, so that ain’t gonna happen soon is it? I guess we could see more correspondent banks moving to Ripple before they migrate all of their back-office systems to ISO20022 real-time structures. Meantime, I think this illustrates what I’ve been saying for a while now, which is that we have the technology but not the standards and structures. In banking more than any other part of the world of commerce, agreements of structures and standards take an awfully long time. By way of example, SEPA was first voiced in 2002 but the vision wasn’t fully realised until 2008 for credit transfers and some would say is still a work in progress.
In other words, for payments and settlements, blockchain and DLT may well offer huge benefits, but it won’t replace existing industry infrastructures until the industry and, in some cases, their corporate clients, sign off on these new structures. It’s the reason why I keep saying we have the horse – DLT – but we need to design what the horse is pulling, the cart, and get all of the key players to sign-off on that design, before we can attach the horse to the cart.
Finally, another key component of this discussion is resilience. If DLT were ready for prime time, then it would no longer be working on proofs of anything, but would be live and up and running. The fact that it is live and up and running in a few selected examples, such as NASDAQ, is because these are closed operations run by a single entity. Try putting the same structure into a world of 30,000 banks and hundreds of thousands of their corporate clients, and I think you see the challenge.
We will get there, but my prediction of it taking ten years (December 2015) is starting to look a little hopeful imho.