Banking as a Platform – Blueprint for Scotland’s Blockchain Economy

Recently Nicola Sturgeon set out a grand vision for developing Scotland as an innovation-based economy, and there is no greater opportunity for realizing this vision than the advent of the blockchain.

Deloitte predicts that by 2025 10% of the world’s GDP will be via blockchain applications, and the WEF believes it could soon give rise to a new era of the Internet even more disruptive and transformative than the current one.

Thriving After Brexit

For Scotland this presents a multi-dimensional array of different opportunities. It will enable organizations to implement innovative new digital business models, for governments to better streamline and secure online services, and for this to be achieved a plethora of new technologies will be needed. We can buy these from the latest Silicon Valley startups, or we could nurture and support them here, cultivating our own portfolio of ‘unicorn’ ventures.

Banking is of course one of the first sectors that will be massively impacted. The WEF believes the blockchain will become the heart of the banking, heralding a complete rethink of the entire banking system.

The headline theme for our blockchain focus is entitled ‘Thriving After Brexit – Rebooting on the Blockchain’, as introduced in the first guest article from Don Tapscott of the same name.

Not only is the blockchain highly disruptive in and of itself, but as PositiveMoney describes much of the finance industry’s core business models are based upon various regulations, and when these are changed it opens up large scale market segment opportunities.

The UK leaving Europe will drive a tidal wave of changes of this nature, and the essence of Thriving After Brexit is striking while this iron is hot. Scotland is presented with a window of golden opportunity, to identify these niches and exploit them with blockchain-powered innovations.

Banking as a Platform

Furthermore there is the potential for disruption through entirely innovative new business models, those described as ‘Platforms’, marketplace models that leverage the crowd effect, such as Airbnb, Uber taxis and many more.

This summary guide (32 page PDF) of the 2017 MIT Platform Strategy Summit provides a detailed discussion of the concept, exploring the dynamics further via their web site in an article that explains how Airbnb will always be a better business than Uber.

Again it is the intersection of these technology and business model trends that offers enormous potential. Omri Barzilay writes on Forbes that the blockchain could be utilized to power next generation versions of these Sharing Economy businesses, making it cheaper to create and operate an online platform; for example, transactions could be coordinated by self-executing smart contracts.

In the banking sector ventures like TransferWise and many crowd lending startups leverage the peer to peer model, and investment activity further illustrates the technology niche opportunities, such as VISA investing in Marqeta, who provide a developers marketplace platform for virtual and physical corporate expense cards that directly services this hyper-growth sector. RailsBank is a startup specifically positioning itself as a BaaP venture.

In his Linkedin blog Pascal Bouvier offers a reference model, describing seven levels of ‘FinTech Platform‘, and the NextWeb describes it by focusing on a specific niche opportunity of PSD2 payments that it might be targeted towards, highlighting that this change is a natural fit for a platform approach.

In particular the super sweet spot of platforms is the intersection of mobile, social and Identity. TechCrunch writes your wallet will become the next platform, with every one from Facebook to Twitter potentially becoming a medium by where business models can exploit social relationships as a conduit for transactions, and Paypal similarly has also moved into peer to peer payments.

APIs and Open Banking Blockchain Platforms

As McKinsey describe the technology developments central to the Platform architecture are the APIs that enable open data sharing, and facilitate dynamic new business models.

Major market players like VISA and Citibank have pioneered early API programs, and the Open Banking Initiative has begun the industry-wide open standards work required to make this scalable and of course, truly open, such as publishing the first versions of the payment initiation specs and Open Data specifications.

The super sweet spot is where all these trends meet. For example Mastercard is building a set of blockchain APIs and ventures like Thought Machine are offering Vault OS to leveraging the blockchain to offer an entire banking system via the Cloud, an ‘operating system for banks’.

In the same fashion as the proposed idea of using the blockchain to power new Sharing Economy businesses, smart contracts are used to create products, so any type of loan or deposit account is entirely configurable. A component called Vault Gateway offers a single unified API to all large high street banks, enabling application developers to write apps for personal finance without having to take part in complex integration projects with each bank.

Featured Digital Scot: Wallet.Services

Scotland is uniquely positioned to exploit and prosper from the Blockchain Economy. The country is small enough to move quickly and is cultivating a skilled digital innovation industry, emulating other digital leaders like Estonia, while also boasting a major financial centre, a combination that could lead to the nation becoming the next financial hub of Europe.

Realizing this ambition will require substance and capabilities in the areas described above, and ventures like Wallet.Services are starting to bring this to market.

Offering a Platform model implementation, Wallet.Services is an API interacting with BlockChain through a simple Wallet concept, underpinned by BlockChain services in public or hybrid cloud. Its architecture supports full auditability of outsourced BlockChain operations.

Wallet.Services supports business operations through a ‘BlockChain business transaction language’, an intuitive high-level abstraction phrased in a manner accessible to the non-programmer business analyst.

With endorsements from Microsoft and the Scottish CivTech initiative, Wallet.Services is also quickly establishing an expertise in applying these innovations to other sectors such as government, partnering with Sopra Steria to develop paper-free, digital-first public service delivery and furthermore, they have been selected to advise the Scottish Governments blockchain strategy.

Conclusion

Although any and all sectors can benefit from the blockchain, it will be banking and government in particular where massive leaps will be made through applying the blockchain, enabling disruptive new banking business models and super streamlined government services. With such well conceived startups like Wallet.Services and early adoption support from the government, Scotland is demonstrating the progress required to achieve global leadership in this largest of market opportunities.

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