In the new FinTech Vantage series by KAE, Steve Pomfret, CEO at Cygnetise, discusses the future of Blockchain technology and shares his views on what it takes to move Blockchain from a concept to a scalable commercial reality…
[KAE] Please tell us more about Cygnetise, your journey up until now and what makes the company and its vision unique?
Cygnetise is a Blockchain platform for maintaining and distributing authorised signatory lists. It simplifies the current process that is carried out by nearly all organisations, alleviating internal operational inefficiencies, reducing risk and mitigating opportunities for fraud.
The Cygnetise application provides considerable benefits to clients and their counterparts; removing the existing administrative burden and improving the overall customer experience. We were incorporated in May last year and have become revenue generative in our first year. After going live in April, we are currently adopting clients across the financial services industry.
Cygnetise is one of very few companies to date that have commercialised a Blockchain application. The reason being that it is a relatively simple, easy-to-use product that solves a problem that almost every medium and large sized company faces. It’s a web-based application, so is easy to adopt and requires no system implementation; meaning it can immediately be of benefit. It can emulate all current authorised signatory list distribution methods.
We made sure it underwent rigorous cyber security penetration testing, since security is such a crucial consideration for our customers. It is not dependent on multi-party participation, although there are increasing benefits to organisations as more participants adopt. These facets are all surprisingly unique for a Blockchain application.
In its current stage of development, it is a tool that specifically improves one particularly painful process. However, it has flexibility and scope to automate the entire signatory confirmation process and link up to other Blockchain applications when they become commercially available (such as identity and KYC databases).
[KAE] Blockchain is a topic that is rising up the corporate agenda. What areas and industries do you feel it has a more immediate application in? And why is this?
Financial services is the obvious one. Financial institutions are under so much regulatory strain at the moment that they are being forced to start operating more efficiently. Therefore, they are very open to innovative technology right now. They are being particularly ambitious trying to revolutionise things like trading, clearing and settlement. Personally I would recommend a different approach that would provide them with some quicker wins. In particular, I don’t think there is enough emphasis on the ‘low hanging fruit’, where Blockchain could significantly aid inherently inefficient processes that are required for day-to-day operations. This is where the more immediate, practical applications can be found.
The insurance and legal sectors also have massive opportunities for quick impact if they focus on applications to improve lower level processes. They are both old, established industries where inefficient processes are prevalent, i.e. document heavy, many manual touch points and a lot of antiquated distribution methods. Blockchain in these industries can radically reduce the requirement to write letters or send emails, which in turn reduces process lag times.
The public sector also stands to benefit, notably within healthcare and record keeping. Decentralisation and smart contracts could revolutionise the health service and significantly reduce costs, IF the barriers to change can be overcome. With all the recent hacking scandals, I’m sure the security benefits would be welcomed.
Although potential savings are huge, there have been some notorious failures of large-scale NHS digital projects which have cost the taxpayer £billions, so you may see private health providers paving the way first.
[KAE] Are there are any common misconceptions held by peers, Financial Institutions and other industry stakeholders around Blockchain and its application? Why do you think this is the case?
Absolutely, both for and against. The FinTech world has gone a bit gaga over Blockchain. I think many financial institutions are being over ambitious trying to apply Blockchain to trading, clearing, settlement and payments. In its current stage of maturity, Blockchain solutions to these complex and high frequency transactions aren’t really viable. There are too many practical and regulatory issues that need to be overcome in order to do this. Technically, there are obvious problems such as handling that amount of data on the Blockchain. Simple search and filtering functionality is considerably more cumbersome / complicated. The location of data is a challenge, considering cross border trading and nodes (copies of the database) being hosted in numerous locations and different regional cloud spaces. These hurdles are being addressed, but in order for Blockchain solutions to become more efficient than other existing technologies or processes, there is still some way to go.
There is also a question of standards. Large financial companies we have spoken to are creating their own standards, meaning sometimes very arbitrary variations between organisations, which creates difficulties for us as suppliers. In order for all organisations to be able to adopt, Blockchain, standards will need to be aligned. Think of SWIFT as an example.
Such challenges do not equally impact all Blockchain applications. That’s why I strongly encourage financial institutions, and other industries, to look at simple solutions first; from the bottom up where these challenges have less of an impact. This will lead to a slower incremental rollout, and more organic growth of culture change / Blockchain acceptance. This will be far better aligned with the progressive development of the technology, giving more solutions a better chance of succeeding. By building very simple applications first, the challenges that arise are managed with far less associated risk and cost.
[KAE] We have seen a number of Blockchain initiatives hit the headlines, many of which are at the proof of concept stage. What do you think is required to move Blockchain from a concept to a scalable commercial reality?
There are some simple measures that will help take Blockchain initiatives from proof of concept to scalable reality.
Most importantly, Blockchain needs to be the right choice of technology for the application. Many initiatives I have seen don’t actually require Blockchain and could be done more cheaply, more easily and possibly better, using other technology. Blockchain is comparatively expensive, and difficult to implement compared with more established technologies.
Secondly, the solution needs to solve a real problem. There will be no commercial value if it does not make life easier for users. There needs to be a good enough reason for the change in culture to be accepted.
Finally, the solution needs to, initially, be simple. Processes should be broken down and tackled piece by piece. These solutions can then be incrementally built out, just like Facebook has been. Neither Rome nor Facebook were built in a day; neither will large-scale Blockchain applications. Initially, I see successful Blockchain applications delivering simple low-level solutions, which may seem a bit boring. These are far more likely to succeed. Over time, these will grow and be integrated to form larger, more sophisticated applications. I also anticipate larger organisations starting to buy up these low level applications, integrating and aggregating them to create Blockchain ecosystems.
The Bank of Canada recently tested distributed ledger technology (a facet of Blockchain) for a wholesale interbank payment system. They concluded that it would not be any more efficient than utilising the existing infrastructure. A good example of where looking to do ‘too much’ right now simply doesn’t work.
[KAE] There are differing views towards Blockchain across the globe. Are there any countries that you feel will be first movers in adopting the technology? And why?
I actually think that some of the smaller countries with more appetite to drastically change the way they do things could surface as the first movers in mass adoption. This could be emerging markets, where they can leapfrog a stage in technological advancement by having less bureaucracy, typically having less entrenched systems already in place. A good example is Estonia which seems to be digitising everything it possibly can within its public sector right now. They already have an electronic health record system and are applying Keyless Signature Infrastructure, a Blockchain technology that provides large-scale data authentication, to secure health records.
I don’t think the more developed countries, the ones you’d think would be the obvious choices, will be the first movers. This chimes with our experiences at Cygnetise when selling our product. The larger organisations immediately see the benefit of the product, but they are clearly the slow burners when it comes to adoption. Company protocol, work flow rules and decision making committees restrict speed of adoption. Smaller companies (or small, autonomous entities within large organisations) are much more receptive, willing and able to move quickly.
[KAE] Outside of the Blockchain space, what would you call out as the key trend and/or technology that will be the most transformative this year? And why?
A bit of a catch all term, but I think we will see amazing advances in Artificial Intelligence very soon. It’s probably not a bad thing that we generally aren’t yet fully aware of the growing capabilities of machine and deep learning, neural networks and natural language processing. But I think we will see more and more of this as these tools are increasingly applied to apps and business; as well as seeing them in all the really futuristic gadgets, robots, driverless vehicles and virtual personal assistants.
Automation of increasingly more complex business processes is going to have a massive impact on the jobs market, as white collar as well as blue collar jobs become ‘at risk’. Like the saying goes, it’s not what happens in your life but how you adapt to it; so it’s how education systems and employment markets adapt to this changing landscape that I think will be most important to the eventual outcome for us humans.
From a security point of view, it will be interesting to see how companies react to the new data protection regulation. I expect to see a growth in VPNs (virtual private networks) which create an encrypted connection between devices and a VPN server, increasing data privacy by preventing snooping, hacking, identity theft and the like.
I’m sure that’s just the tip of the iceberg and there’s a whole raft of new technologies out there which we just don’t know about yet. We live in exciting times.
About the Author:
Steve Pomfret has spent the majority of his career advising large banks how to become operationally more efficient, geographically covering London, Birmingham, New York, Florida, the Netherlands, Johannesburg, Milan, Paris, Frankfurt, Zurich and most recently Moscow. He has compiled a qualified team and set of partners enabling Cygnetise to become one of the first commercially useful applications of Blockchain technology.
Contact Steve at [email protected]
More about FinTech Vantage:
This is the first post in the new FinTech Vantage series by KAE that provides a fresh perspective and hears first-hand from various players across the FinTech ecosystem.
KAE will be posting a number of interviews with FinTechs that share their candid viewpoints and to really get under the skin of the FinTech world.
If you would like to share your views and participate in this series, please reach out to us at [email protected]