Blockchain in Banking and Finance

In this episode of Blockchain Beyond Hype, we interviewed Evan Ngow, Founder and Managing Director of Mindsmiths Global. We talked about how blockchain is perceived by banks and financial institutions and what radical changes this technology can bring to the banking and financial sector.

What perception does the overall market have about blockchain?

Being in the corporate sector, I’ve had the privilege of working with different organizations, traditional mainstream organizations like the financial institutions, the banks, and also some FMCGs, local FMCGs. I have had the privilege of running blockchain one-on-one preparatory programs, sessions to introduce what blockchain is all about, and the general perception is very positive. People are still very skeptical with cryptocurrencies, bitcoins, I think it’s not because they do not like it, I think the general perception is slightly negative because of the previous market sentiments. People are not aware. They are not clear. They do not understand what is the technology that drives these cryptocurrencies. Hence, I think there is a lot of room for education with regards to what blockchain is all about, the blockchain technology that is driving this new wave of crypto assets, I would call them. I think with regards to that, there are a lot of requests to understand what blockchain and cryptocurrency are all about. So yeah, I think generally it’s still very positive.

What is blockchain technology in banking?

I think the banking sector is definitely one of the industries that were greatly affected, we call this a disruptor, but I don’t think it is just a disruptor for the banking sector. It is a disruptor to a lot of other mainstream technologies because blockchain is a foundational disruption. It changes fundamentally a lot of different aspects to how wealth is being distributed, how data is actually being viewed. So I think with regards to banking, they tend to look into blockchain more as a backroom support at this point in time when you talk about the transfer of settlements. That’s something which is not directly affecting their consumer base more in terms of how they would deal within themselves, within the organizations, within the banks, so it’s still very nascent at this point in time. But I think banks need to adapt very quickly to the growing demands from the consumer when we talk about a transaction, when we talk about the transfer of money, and I think that’s something which the banking sector needs to adapt very quickly.

What attitude do banks have towards blockchain technology?

I think generally, the bank’s attitude towards blockchain is very positive. However, the banks are very skeptical when it comes to cryptocurrencies. I think it is very difficult for us to actually separate cryptocurrencies and blockchain because fundamentally you cannot create a crypto asset if it’s not derived from blockchain, and because of this misunderstanding, a lot of people tend to say, I don’t want to talk about cryptocurrencies, but I want to talk about blockchain, and I have to correct them constantly by telling them what blockchain technology is all about first. They are willing to embrace blockchain as a technology to support backend transactions and settlements, clearing, but they tend to avoid talking about cryptocurrencies, crypto assets in general, they tend to look into discussions about blockchain and how they can actually capitalize on this technology.

How banks approach the blockchain?

I can only talk about Malaysia. There are not a lot of developments in utilizing blockchain. They are only approaching blockchain from an understanding of what it is, so that they can better package their products for the market, but I think slowly banks are realizing that people are moving towards blockchain, towards digital payments, towards cryptocurrency and how it affects even retail payments. Eventually, I think they would definitely be also producing products that will have a blockchain-based technology that is driving it. But I know some banks have worked with us a few couples of projects, Ripple namely, to support their backend settlement payments and stuff like that. So it’s still very nascent.

How is blockchain useful for banking?

I think most importantly is to understand fundamentally what blockchain brings to the table. Blockchain has two key functions, which is the veracity of data to verify transactions, and of course, the next part is – it incentivizes the nodes, the people who actually verify this transaction. So if you’re looking at that and understanding that fundamental concept, we are seeing how banks, if they ought to do a blockchain, will probably present themselves as again the trusted partner to be able to conduct this transaction for their clients. So I think eventually the more they embark on such a project, they will present themselves as the partner for their current clients. So I think it’s a good way forward for most of these banks to be able to enlarge their pool and their consumer base.

How would a bank on blockchain cope with the transparency aspect of a blockchain?

I think it will be very difficult for the banks to open up their ledger. I know for a fact that it will probably not happen. Therefore, there might be a certain permutation in terms of providing some private blockchain platforms that would be more closed, permissioned than the public platforms that we are more used to like Bitcoins and Ethereum. So if you’re looking at that, you’ll probably have the banks still manage their own ledgers, but to be verified by all the nodes within their control. Hence it actually defeats the main purpose of blockchain. But I think because blockchain is a buzzword that is actually coming into the market, I think that’s how they will probably be moving towards.

What radical changes is blockchain bringing to the banking and financial sector?

I think the most fundamental one would be the ease of transactions to be transacted. It’s so easy to transfer and send money to anyone anywhere in the world. I do know that there are especially, for example, the Philippines and you have close to 10 percent of the population who are working overseas and they contribute to almost close to 20 percent of the GDP and a lot of them send money back to the Philippines, to the families. And this is actually in a very good way to be able to transfer money and also the ease of the money to be transferred is something which will help reduce costs, reduce the time, and everybody will be able to access it. So I think that’s something which we definitely hope to see in the future as well. That’s one of the reasons why I think blockchain technology has boomed quite tremendously in the last couple of years.

How do banks use blockchain?

Of course, the first one is the verification of their transactions that will definitely be one part of it. The other one will be clearing and settlement. I think that is between banks and between, you know, even within their old system, that will be something which doesn’t necessarily have to involve the consumers. It’s something which will ease and make these transactions and transfers much, much easier, and faster. We are also looking in terms of how we can improve payments, digital payments, and how these internal tokens can also bring about a new way of payments to be created. I know that it is still a long way to compete with the current payment system that’s provided by Mastercard and Visa, but I think it is the next step towards creating a new way of doing business. I am very excited about what the future is going to hold.

What blockchain use cases in banking have caught your attention?

I think some of the challenges that will be worth looking into is how blockchain products can be utilized within banks. One problem came about, it’s the concept of leveraging. That’s how banks make their money as well in being able to provide loans to the consumers. That is still a challenge. The other area is the area of custody. Having a trustee and custody in terms of your money and obviously, in the event of your death, you would have the banks, obviously, you’ve got various platforms within our traditional mainstream environment, legal framework to be able to ascertain, your death certificate and your next of kin will be able to withdraw the money. That is almost impossible when it comes to cryptocurrencies, digital wallets because you keep your private key to yourself, you can’t share your private key with your lawyer. What I do know is that there are already projects that are working on coming up with custody-based projects on blockchain. So like I said, it’s exciting to see what the future holds. There are a lot of these projects that are coming up to replace what we are used to in the mainstream world.

Why should banks and financial institutions use blockchain?

The ability for us to confirm and verify our transactions, I think it is fundamental being able to do that. So if banks are able to provide that and produce that as a supplementary service that enhances their trustability, then obviously that will work well for their business as well as their consumers.

What would users experience if their bank used a blockchain?

So the user experience will really depend on what they want. Each one will want a different experience in its sense. I would definitely want to do something that has greater control. Otherwise, mainstream adoption is going to be very tough. But having said that, because of the value that blockchain can bring at the backend of stuff, organizations, financial institutions, banks, what they probably need to do is to learn how to actually have it on the application layer. The consumer experience in making it easy for the different touchpoints for the consumer. So if you can do that, obviously mainstream adoption, they don’t even need to know that it is actually blockchain-based. There is a growing movement right now within even the blockchain community that, in order for us to have a higher level of mainstream adoption, is to make the consumer experience much seamless, much easier. It’s all in our digital apps, our digital wallets. Even though it’s not blockchain, you will find that more and more people are beginning to slowly adopt towards that digital revolution. I’m sure as we slowly move towards revolutionizing the entire digital economy from our retail experience to our banking experience to even our social media experience, you’ll find that people will eventually fall into it. So it’s just a matter of time.

What blockchain applications do you see outside of the financial sector?

If I were to look beyond just the financial institutions and the banks, I think the market is definitely excited about the implementation of blockchain beyond cryptocurrencies. One such will be, of course, the medical industry where we are looking into how we can actually put all these medical records onto the blockchain where you can have it easily accessible. We have what we call as medical tourism nowadays, especially in Malaysia, it’s huge, and it reaches out to the Arab market. As you know, they travel to Malaysia for their medical needs. You will find that when you have your database that is actually secured on the blockchain that you don’t really have to worry about cross-border, it’s the same thing. You can move from one place to another and have those medical records kept properly and securely, as well. When you look into that aspect, you’re also looking into other areas like title deeds or even your national identification, your passports. You don’t really require a paper to determine who you are. Everything else nowadays is slowly being transferred to the cloud. So the big issue is your big data storage that is going to be huge in the future. You need to place them somewhere. You don’t want it to be residing on one particular party. We do know how sometimes our records, you know, are being sold. Our identities are being sold. I mean, there is a saying that if something is free on the Internet, that means you are pretty much the product. I think a platform like blockchain allows us to take back a piece of what we have lost to lots of these big huge organizations that seem to take our data, and they are making a lot of money out of it as well.

What blockchain use cases have caught your attention?

I was actually looking forward to Facebook’s Libra. And the reason why I was looking forward to it is the implementation of a platform that will allow much greater adoption, because obviously when we talk about Facebook, it has one of the highest penetration rates in terms of usage, users and its reach is tremendous. I do not know if there’s anybody else who’s going to be able to top Facebook. Maybe not in the next couple of years. There might be other social media platforms. Knowing how our human cycle works, there will always be one that will peak, then it will fall, and someone else will take over. But I think this is a great step towards a full adoption and having people understand what cryptocurrency is all about.

How do you envision blockchain changing the world?

I think technology will always constantly evolve. Blockchain is one of those fundamental disruptions, technological disruptions that are shifting the way we are doing business traditionally, and it’s definitely disrupting the first key area, which is the financial system. Our financial system is very archaic. It has been around for hundreds of years, the way it has been, and I think it’s about time that it goes through its own major evolutionary rechange. For now, I think this is the next big thing. It has been around for the last ten years since first Bitcoin protocol was created and with so many other permutations, so many other blockchains that’s coming up right now, I also foresee that at least in the next 10-15 years or maybe 20 years, there will be something else that will be built on top of what we have created so far.

How do you think the market for the blockchain-based solutions will evolve?

I spoke a little bit about digitally native products to be on the blockchain. It’s still a challenge. It’s not far-fetched. It’s still a challenge to be able to place non-digitally native products onto the blockchain. It’s not impossible. But I think the challenge for us right now is embarking on those digitally native products to see the feasibility of its implementation on the blockchain before we actually move towards the non-digitally native products.

BBH Guest:
Evan Ngow is widely acknowledged amongst his peers as an engagement specialist. Having worked extensively with a wide range of clients in various industries for GLCs, TTLCs, MNCs and SMEs in Malaysia and the SEA region to deliver various sessions on team, leadership, personal enhancement, and organization developmental change interventions. He is also widely known as the Crypto Catalyst and the founding Node member with the World Blockchain Foundation, where he conducts various courses and outreach programs to facilitate the growth and education of blockchain globally.

Blockchain Beyond Hype is a series of interviews with blockchain experts and technology professionals from all across the globe about blockchain projects, challenges, innovations and the future of blockchain within the blockchain jungle!