Lack of Interoperability Standards Holding Back Blockchain Adoption in Financial Services: Gartner

by | Sep 17, 2019

Blockchain Insurance Platform

Lack of interoperability standards will prevent pervasive blockchain deployment across financial services ecosystems for at least three years, according to Gartner, Inc.

“Blockchain standards for financial services companies are currently fragmented and immature,” said Fabio Chesini, senior research director at Gartner. “We are three to five years until standards mature and settle.”

Standards are critical for financial services entities because they are constantly moving assets between clients, partners and other institutions. Today, bank CIOs can choose from numerous blockchains, available from either enterprise-grade approaches such as Corda, Hyperledger, and Digital Asset, or the many public blockchain standards like Bitcoin, Ethereum, Cardano, EOS, and Tezos. They are all trying to become the de facto state machine for value exchange and digital asset representation, smart contracts and decentralized applications. This indicates the fragmentation of the various standards.

“Bank CIOs must be mindful of this nascent and fragmented state of blockchain standards,” said Mr. Chesini. “It is unlikely there will be a single de facto standard like in the Open Systems Interconnection (OSI) model, at all levels. Given how new and fragmented the state of blockchain standards is, we expect no more than four standards to lead the market in the next three to five years.”

In addition to standards, Mr. Chesini warned financial services CIOs of three additional impediments when deploying blockchain projects: governance, integration and interoperability. 

Governance

Blockchain governance is important because it regulates activities occurring across the ecosystem and provides legal assurances where arbitrary decisions will not be made as an abuse of power against other participants.

“Governance specifies how value is exchanged, but also how those data exchanges are recognized and recorded, as well as who has access to them and who can exchange value with whom,” said Mr. Chesini.

“Governance and management of private and permissioned blockchains in any form, including consortia, will remain centralized and hierarchical during the next three to five years, making blockchain governance in financial services a key impediment for the same period,” said Mr. Chesini.

Integration

To achieve the true potential of blockchain, implementations must be seamlessly integrated with already installed software solutions. However, major software and SaaS providers aren’t offering blockchain solutions as add-on features to their enterprise solutions. As a result, financial services organizations are paying a high cost for continuously maintaining and “reintegrating” blockchain implementations into their new and existing enterprise software solutions.

In the next two to three years, Gartner analysts expect all major ERP and CRM players to offer blockchain capabilities as an add-on feature for their software and SaaS products. Software suppliers, meanwhile, will integrate and upgrade their chosen blockchain versions and ensure compatibility with their own new software releases.

“These efforts will dramatically reduce the cost of deploying blockchain projects across the financial services organizations and their supply chains,” said Mr. Chesini. “In the meantime, the full-lifetime costs of integrating a blockchain solution in an organization will be millions of dollars in consulting fees, reengineering, development and upgrades. These high costs drastically slow the widespread integration of blockchain initiatives.” 

Interoperability

Bitcoin, R3, Ethereum, Hyperledger and others often use differing implementations, data formats, data interchange and directories making interoperability among different blockchains difficult across organizations.

“As financial services companies constantly move financial instruments and assets to other financial services companies and partners, cross-industry interoperability standards are, and will be, critical,” said Mr. Chesini. “Today, they are looking to replace current banking vehicles for payments like Western Union, or international money transfers like SWIFT, with blockchain-based platforms.”

Fixing these types of data exchange standards will enable numerous blockchains to coexist and to share their ledgers, as necessary. However, as blockchains are a moving target and keep evolving, interoperability solutions are still three to five years away.

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Brian Pereira
Brian Pereira
Brian Pereira is an Indian journalist and editor based in Mumbai. He founded Digital Creed in 2015. A technology buff, former computer instructor, and software developer, Brian has 29 years of journalism experience (since 1994). Brian is the former Editor of CHIP India, InformationWeek India and CISO Mag. He has served India's leading newspaper groups: The Times of India and The Indian Express. Presently, he serves the Information Security Media Group, as Sr. Director, Editorial. You'll find his most current work on CIO Inc. During his career he wrote (and continues to write) 5000+ technology articles. He conducted more than 450 industry interviews. Brian writes on aviation, drones, cybersecurity, tech startups, cloud, data center, AI/ML/Gen AI, IoT, Blockchain etc. He achieved certifications from the EC-Council (Certified Secure Computer User) and from IBM (Basics of Cloud Computing). Apart from those, he has successfully completed many courses on Content Marketing and Business Writing. He recently achieved a Certificate in Cybersecurity (CC) from the international certification body ISC2. Follow Brian on Twitter (@creed_digital) and LinkedIn. Email Brian at: [email protected]
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