In a paper, Capgemini has described how blockchain technology is bringing about a paradigm shift in the financial institutions.

Titled “Blockchain: A Fundamental Shift for Financial Services Institution”, the report has been authored by Bart Cant, Principal, Business and IT Transformation for Capgemini Financial Services; Christophe Vergne, Global Head, Cards & Payments Center of Excellence  for Capgemini Financial Services; Cliff Evans, Global CTO for Capgemini’s digital business; Martina Weimert, Senior Vice President at Capgemini Consulting.

The authors say that blockchain technology has the potential to provide unprecedented transaction security and completely changes the financial transaction-processing cost model. They explain that the technology enables processing to be done over a distributed systems network or in the Cloud, avoiding the use of costly datacenters or mainframes.

“Distributed-ledger technology has the potential to be a major disruption in financial services. The disruption will likely begin as this new technology makes existing processes more efficient, secure, transparent and inexpensive, and then later as the technology inspires the creation of new products”, the report said.

Having identified the need for a framework for financial institutions, Capgemini has created a 9-step approach for evaluating blockchain platforms:

• Security: assessing the cryptography used, protocol design, oversight capabilities by government agencies
   
• (De) centralization: how participants interact with each other, governance and control by each participant, impact of actions of different participants on the platform
   
• Privacy: tools used for collecting, analyzing and reporting identity of the users, compliance with KYC, AML regualtions
   
• Scalability: historic transaction growth patterns and projections of future growth, factors affecting growth projections, future/alternative designs to improve scalability
   
• Usability: features impacting adoption of the platform, available tools for monitoring and controlling operational processes
   
• Extensibility: integration capabilities with existing financial services platforms, additional applications built on top of the platform, tools to provide audit and compliance capabilities to external parties
   
• Cost: identifying different cost components for starting up and running a blockchain application, analyzing different cost scenarios and impact on ROI
   
• Operational impact: analyzing integration points between blockchain solution and existing banking systems, developing a new operating model for blockchain and new support model
   
• Community support: taking inventory of different community support groups and models, analysis of operational risk, developing support models for sustained growth

However, the authors emphasize that while the technology can bring increased profitability and the excitement of innovation and change, it can also create a period of potentially great disruption and confusion in the financial services industry. Further noting the current state of knowledge along with the approach of regulators towards the technology, the report recommends collaboration between banks.

“In this environment, it seems that some common assessment, collective thinking and sharing of potential opportunities for – and impacts on – banks could be useful”, it added.

To this end, the authors said that Capgemini is currently involved in helping to shape this common effort. Its initiative aims to bring together banks and experts to exchange ideas and information and mobilize participants around an interbank opportunity assessment.