Category: Industry Trends, Innovation, Technology

Disruption Ahead: Is Blockchain the Next Disruptor to Hit Financial Services?


Well-known disruption guru and management expert Clayton Christensen describes disruption as being both creative and destructive. And therein lies the catch. Being able to grasp and embrace the possibilities that disruptive innovation can bring even though it flies in the face of how you may think and operate today. Blockchain image2

But disruption doesn’t have to be a 4-letter word, which was the theme of the recent NICSA East Coast conference. Blockchain, a topic gaining a lot of traction these days, was one of the featured topics. Some are predicting that it will be the biggest impact to business over the next decade.

Blockchain may be a game changer, but what are some of the implications for financial services? And if a firm isn’t “all in” at this time, has it missed the blockchain disruption innovation train?

So before I had even headed into NICSA’s session on blockchain, “Blockchain Unleashed: What You Really Need to Know and May be Afraid to Ask?” my interest was already piqued.

Here are a few takeaways from the session:

What is blockchain? It’s not bitcoin (blockchain is the technology underpinning bitcoin). The panelists described it as a shared public ledger, employing complex cryptography that “strings” together “blocks” of transactions. Others describe blockchain as a distributed ledger.

When blockchain approves a block of transaction, it then adds it to the string. In essence, one database or ledger is shared to perform transactions, contracts, etc. The transaction can be currency-based, contracts, etc.

What stage is the technology in and what is financial services role? While the technology is still in its infancy, “experimental” stage, financial services isn’t sitting on the sidelines according to the panelists. Some of the biggest financial institutions are making significant investments in the technology, with many developing proof of concepts and participating in R&D consortiums. One of the biggest consortiums is R3.


Although financial services firms may not be creating the technology, many are focusing their efforts to direct the formation of the architecture and use applications. John Burnett, a panelist and a vice president at State Street, cited State Street’s involvement with R3 as well as some of State Street’s other blockchain-inspired initiatives.

What are some of the implications and potential uses in financial services? Because blockchain eliminates the middleman, transactions will complete in a much shorter timeframe. The float on transactions, which can be a lucrative source of revenue when interest rates are high, could all be eliminated.

On the flip side, tremendous efficiency gains could result. Operations and back offices becoming more streamlined. Down the road, many firms could leverage the technology for internal processes, but there may also be revenue opportunities too. Regulators are also interested in the technology since blockchain keeps a record of all transactions that take place. The benefits from an audit perspective could be substantial.

What are the security ramifications? Panelists described blockchain technology as a tamper proof “trust.” How so? Blockchain is a distributed database, replicated in multiple locations and requires each transaction to be validated before being accepted to the chain, the more transaction layers (blocks) the better.

Therefore, the more people who are on the chain and participating in the validation, the more secure the chain becomes and harder for a hacker to break. But security concerns and questions still remain, and understandably so in today’s world of cybercrime.

My final takeaway: Have we reached a milestone yet when it comes to blockchain and the financial services industry? No. Is our industry deeply invested? Yes. Will the technology have real benefits and material use for our industry? Stay tuned.

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Kim Froio

Kim Froio

With more than 25 years of transfer agency and shareholder servicing experience, Kim has been instrumental in delivering new products and services to help strengthen the position of asset managers. As Vice President of Enterprise Compliance Solutions, Kim has helped shape the compliance strategy and introduced a number of compliance solutions including Boston Financial’s 22c-2 solution, Unclaimed Property and State Inactivity Solicitation, and Blue Sky Administration. Kim was integral to the design and launch of Boston Financial’s E-Business practice and the deployment of the Boston Financial KnowledgeBaseTM. Kim, AKA “Mom” or “Coach,” treasures the moments she spends with her three children, Noah, Reese, and Mia, and husband, Paul. She is a member of the NICSA East Coast Regional Committee, and earned her degree from Aquinas College.


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