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TV: The impact of blockchain on financial services

Axel Threlfall, Reuters Editor-at-Large, chats with David Craig, President of Financial and Risk at Thomson Reuters, and Peter Smith, CEO of Blockchain, about the impact blockchain is having and will have on the financial services industry and society as a whole.


Axel Threlfall: Welcome everyone to the Answers On video series. I’m Axel Threlfall and I’m joined here in London by David Craig, president of Financial and Risk for Thomson Reuters, for his thoughts on a hotly debated subject right now: The effect or the impact blockchain is having and will have on the financial services industry. To provide us with some context if you like I want to share parts of an interview I did recently with Peter Smith who is the CEO of Blockchain, the software platform. I asked him what he thought were the key benefits of the technology. Efficiency, transparency. This is what he had to say.

Peter Smith: For me it’s efficiency. You know I’m a big believer that when you have transparency in markets, that makes them more efficient. When you have speed in markets and makes them more efficient. I think at the end of the day, financial services and technology is fundamentally about efficiency.

Axel Threlfall: What do you think David? When you speak to our clients, what is it they are saying about efficiency as a priority?

David Craig: No one can not want efficiency, but I think blockchain is much more than that. I think I agree with Peter that that could be one of the outcomes but I think there’s more to blockchain or distributed ledgers. There’s a fundamental change in how parties that operate with each other can trust each other to operate, be they clearing houses or trading houses or a settlement center. Or you know how provision of tax receipts has made through government.

What blockchain does doesn’t drive efficiency, it changes how trust is federated between those counties. It electronifies the contracts in which they operate and makes them automated. Now if you do that well, it will very well drive efficiency. It may even remove some counterparties that were involved in that process. And so efficiencies could definitely be part of it.

But when I hear from my customers, what are they saying, why are they investing, and many of them are, in blockchain, is that they’re actually recognizing that this could be a market structure change. This could change how an industry operates and therefore they don’t want to be on the wrong side of that equation. I haven’t yet seen a client saying I’m going to invest in blockchain because 10,000 jobs will come out. That’s not the lens that they’re looking at this for, so it may come as an outcome but I think that’s where our clients are focused.

Axel Threlfall: Okay. With all this talk of efficiency trust and transparency, I also spoke to Peter about whether there was room for skepticism among the banks, among our clients, for this sort of technology. This is what he had to say.

Peter Smith: I think there’s political realities inside banks, which is that when you make things more efficient, when you carve out 400 jobs, that’s some MD’s that are out the door. Those MD’s owe favors and are owed favors further up from management, and I think the banks are ultimately very political places. I think that ultimately a lot of times bankers are kicking the can two or three years down the road at the bank. They’re not really interested in long-term fundamental value.

Axel Threlfall: What do you think? I mean a little bit of healthy skepticism is always good. What are your thoughts this?

David Craig: My own experience is that the places that are going to get most involved and see the change are the operating centers. You know, it’s not the MD’s in charge of M&A or other areas and they, you know, have gotten into the mode of looking for areas to improve efficiencies and operations and other pieces, so I’m a little less on the skeptical side of it. I don’t necessarily agree with Peter that there’s a there’s a barrier to change in all the institutions that I serve.

Actually, there’s a huge demand to try and experiment with some of these new models to do that. So you know I actually see a lot of encouraging signs that people are investing, they are curious about this. There is going to be skepticism, and there’s going to be some failures. Not all of these experiments will work. No one’s proven the economics yet of these new technologies. I’ve yet to see an economic case really proven that it works. So we’re going to find out and it’s very early to say.

Axel Threlfall: And I guess the proof is are they putting their money where their mouth is, right? And it looks like the big financial services players are right now.

David Craig: Oh there’s billions being invested in this. They are putting their money where their mouth is. Will that all come back with return? It’s unsure, but they are definitely investing in this and doing it in quite substantial — I’ve struggled to find a major financial institution that is not in some way investing in blockchain technology.

Axel Threlfall: And finally, another really hotly debated subject in Davos this year was whether society can keep up with the pace of this sort of technological change and what the likely impacts will be. I put that to Peter as well and this is what he had to say.

Peter Smith: Ultimately, all this efficiency is going to reduce jobs, right, in order to reduce jobs in the city. And it’s hard to shed a lot of tears for bankers at the moment and I don’t think the general population is that concerned about losses in the city, but that is going to happen. And that’s going to have knock-on effects to the tax base. It’s going to have knock-on effects to the way the London real estate works. And ultimately, I think that’s a huge question for public policy makers to address.

Axel Threlfall: And you and I have talked about this before. It can be overstated, right, the sort of change, the impact that we might see.

David Craig: Let’s step back a moment and look at what society is looking for from financial institutions, from the financial community. They want access to financial products, they want to lend and borrow and they want things to function well. If the new technologies make the financial services more effective and deliver a better customer experience, I think society will embrace that, and I think the ramifications of some of these technologies, particularly for financial services access and enabling in developed countries, more people to engage in financial services and to have access, it’s actually an enormous benefit that we’d see.

I think what people can now do on their iPhone in terms of accessing payments and accessing financial products is incredible, and no one would turn that away. People actually demanding better services from their financial institutions, and I think financial institutions are really struggling with this because they’ve got old legacies and old technologies, and they’re seeing new, younger, smaller companies deliver a better experience in a better service, so I’d look at the way society wants to engage with financial institutions and I think there’s a huge change going on around service and products and availability.

You just have to look at what’s happening in China and how you can now buy financial products on WeChat, and you see the change that is actually coming.

You know, on the jobs and the other side, well you know many of the jobs won’t be in the sort of city centers, they’ll be in the operating centers, and I think the change that we’re going to see is we’re not going to be just, you know, automating manual processes with lower cost people. We’re actually going to be using technology to change those processes. So there’s going to be a demand for more technologists. There’s already more demand than supply for technology, so I think we’re going to see a shift in skills like we’ve seen in many of these changes over history. Not necessarily fewer jobs, but certainly different types of jobs. That will have an effect on society, but I don’t think it’s quite as Peter sort of quite quickly summarizes it.

Axel Threlfall: Alright, David, thank you very much indeed for your thoughts. David Craig, president of Financial Risk, here at Thomson Reuters. Do keep your eyes on this site for more interviews like this one. You’ve been watching Answers On. I’m Axel Threlfall.

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Mercredi 5 Avril 2017