Michael Aaron is the A/NZ Blockchain Leader in the Global Markets division of IBM. With 36 years of experience in the finance industry, he partners with organisations to leverage the best of Blockchain technology to overcome existing constraints and open up new opportunities for their businesses.
What are the key opportunities and challenges for traditional financial services providers over the next 12 months?
I see Blockchain - or Distributed Ledger Technology (DLT) - as creating both opportunities and challenges for traditional financial services providers. The opportunity is to use DLT to both improve existing offerings and to enable new offerings for SME and Commercial customers.
For example, DLT can significantly improve Debt Financing products such as invoice discounting, by reengineering the process between the buyer, seller and the financial institution. It can reduce the time for the seller and the bank to set up the facility and for the seller to get the financing. Financial Institutions can improve their Know Your Customer/ Know Your Business (KYC/KYB) process by having a token or badge on the DLT, which represents the underlying proofs of identity stored on other systems, such as the Passport Office, Births Deaths and Marriages, etc. The tokens can be used to establish customer identity for on-boarding, anti- money laundering and counter terrorism financing, authorised signatories and the determination of beneficial ownership.
Another opportunity for DLT is to help address the reuse of collateral or bank guarantees multiple times and in multiple intuitions. A record representing the collateral or bank guarantee is held on the DLT and can only be used once, with consensus amongst the participants, thereby minimising fraud and potential losses.
The key challenge for traditional financial services providers from DLT is the enablement of new offerings and business models by start-ups and digital competitors, who reimagine business process and networks which do not need to have a financial institution acting as a trust intermediary in them. Examples include crowd funding or capital raising using a DLT, as Northern Trust is doing, or the creation of business networks where the buying and selling takes place in a private marketplace, utilising a representation of fiat currency with automatic reconciliation by participants.
What are the big opportunities for IBM over the next 12 –18 months?
IBM are working on a number of pilots around Blockchain technology, not only in the financial sector but with and across other industries. One though that has me particularly excited is a recently launched digital identity project in Canada based on advanced federated identity and Blockchain technologies specifically designed for regulated industries. Once it goes live later this year, consumers will be able to instantly verify their identity for services such as new bank accounts, driver’s licenses or utilities. With an extensive digital identity ecosystem including major banks, telecom companies and government agencies, this is a real game-changer in identity verification and the KYC/KYB space, underpinned by a permissioned Blockchain network.
Within Australia and New Zealand, we are working to help financial institutions and other industry players understand how DLT can create new efficiencies and business models to both help themselves in their own business and to support their customers in the area of supply chain. Watch this space!
How big an opportunity do you see digital disruption being for you, the industry and consumers, as a whole?
"Digital disruption creates the environment and dynamic for financial institutions to explore new technologies like Blockchain to determine its applicability to their businesses and processes."
Digital disruption creates the environment and dynamic for financial institutions to explore new technologies like Blockchain to determine its applicability to their businesses and processes, for the benefit of both customers and shareholders. Although it is likely traditional financial institutions will retain a strong hold in the market, emerging financial disruptors provide the motivation for transformation and reinvention of both the financial institutions and financial system as a whole.
What innovation are you seeing locally and globally that you think is effective? (Examples can be from outside of the Financial Service industry). Why?
Innovation is driving the modernisation of antiquated processes that previous technologies have been unable to address effectively, such as supply chain finance (F-EDI). Examples of banks already doing this include Yes Bank in India who are using Blockchain to ease the paper work and payment processing burden for its Corporate clients and Vendors whilst offering a range of financial management advantages around availability and cost of funding. Mahindra Group have developed an ecosystem of Suppliers, Purchasers and Financiers to bring visibility to invoice generation, shipment status, GR status and financing approval – to make Invoice Discounting more efficient and which integrates into existing ERP and core systems.
Other areas driving modernisation include Trade Finance, such as A.P. Moller–Maersk Group. The Global Trade Digitisation work IBM did with them created an open, extensible platform for sharing shipping events, messages, and documents across all the actors and systems in the supply chain ecosystem. Increasing transparency and timeliness of data enables new offerings and changes the parameters of competitive differentiation for each of the stakeholder types.
There is also a focus on enabling new ways of doing business as with the example of Private Equity Capital Raisings with Northern Trust. By leveraging Blockchain technology, there is one version of the truth with greater transparency, efficiency and security to asset classes that have remained largely paper-based and manual. This means greatly improved time to market to launch new funds and the regulators have access to real-time data.
Locally, we are at a relatively early stage of Blockchain implementation That said, we are seeing a number of organisations across different industries piloting DLT to support their business objectives and I expect we’ll be hearing more about them in the near future.
It is important to note that many non-financial institutions are investigating DLT for establishing provenance or chain of ownership for both financial and physical assets. Examples include Maersk to reengineer global shipping, Everledger to prove the source of diamonds, Wal-Mart to prove that the pork sold in their stores in China is organic and safe, creating business networks like China Union Pay for loyalty point’s redemption and automated cross border payment instruction reconciliation for correspondent by SWIFT. It is likely that non-regulated businesses will adopt DLT technology more quickly than financial institutions, as financial regulators consider the risks and benefits of DLT.
What will be a key element to winning in this market over the next 5 years?
There are a number of key elements to consider over the next five years.
It is important that regulators and influencers are engaged in discussions around DLT so they understand the strengths and weaknesses of it and the benefits and threats to the Financial System. Developing and supporting Start-ups’, FinTechs’, Incubators’ and ISVs’ use of DLT to develop applications for use by financial institutions is another key element. As is helping to create, instantiate and run the infrastructure for DLT based networks as a service.
"It is important that regulators and influencers are engaged in discussions around DLT so they understand the strengths and weaknesses of it."
One of the key elements to success here is working with clients on this new technology to bring expertise and technical leadership in the context of their business and IT strategies. Leveraging IBM Research for the development of Minimum Viable Products will really help in this space.
What aspect of IBM are you most proud of?
Developing and applying new technologies to solve our clients’ business challenges and enable new business models which make IBM’s research and work essential.
What do you enjoy most about your role at IBM?
Constant change and the opportunity to continuously learn and apply that knowledge in the real world.
If you’d like to learn more about Blockchain and its possibilities, visit www.ibm.com/blockchain/au-en/ or contact Michael directly on LinkedIn or email firstname.lastname@example.org.