BLOCKCHAIN

TECHNOLOGY
FROM HYPE TO REALITY
February 2017
Content
1 Foreword
Sanat Rao, Chief Business Officer and Global Head, Infosys Finacle

2 Executive summary
3 Highlights of the report – Key findings
4 Investments, focus areas, and use cases
5 Adoption strategies
6 Opportunities and challenges
7 The way forward
Foreword

Last year, the Infosys Finacle – Efma Innovation in emerge. Banks must experiment with the technology
retail banking report stated that, 61% of the banks in a controlled environment to discover the value
perceived blockchain will have a significant impact it can bring in their context and basis that commit
on emerging banking business models in the next towards production deployments. The study further
three-four years. Within a short span of time, our new reaffirms this belief. Our recent successful blockchain
study reveals that banks are not only endorsing this technology pilot with ICICI Bank Limited, India’s
technology as revolutionary, but they are actively largest private sector bank by consolidated assets, and
investing in it – 50% of banks are already investing in Emirates NBD, the leading banking group in Middle
Blockchain or will invest in 2017. This study, covering East, using the EdgeVerve Blockchain Framework was
more than 100 senior financial services professionals also one such step in this direction.
from over 75 organizations across the world, also
Blockchain offers immense possibility, and can be
highlights that the average investment in blockchain
implemented in a range of banking operations, from
projects in 2017 is expected to be about $1 million.
trade finance to international payments and securities
While the report reiterates the near unanimous trading. It is important for each bank to determine the
agreement about blockchain’s transformational area where blockchain fits best in their transformation
potential, several questions remain: How soon can strategy and then initiate efforts to apply the
the industry create collaborative networks with technology in real-world processes.
this technology? Can the technology meet the
This study was made possible due to the efforts of
scalability requirements? How can we tackle the lack
all the respondents who took time out for answering
of governance models with? How do we integrate
this survey. The insights from their responses, give
multiple networks with existing infrastructure?
us further headway into the opportunities and
With several open questions, it is understandable that challenges associated with blockchain and its future
banks aren’t deciding in a hurry – with 50% stating in the industry. We hope you will find it useful while
that they will invest when the technology is more crafting your organization’s blockchain adoption
mature. As a technology partner to banks across strategy.
94 countries, clients often ask us how to effectively
Sanat Rao
use this technology to discover its benefits that are
Chief Business Officer and Global Head,
contextual to their business. Our consistent advice
Infosys Finacle
to them is that they shouldn’t wait for all answers to
Follow @twitter

External Document © 2017 EdgeVerve Systems Limited I 3

2 Executive summary

Ever since the first Bitcoin transaction was carried out banking group in Middle East, Emirates NBD on two
in January 2009, the digital currency has been a topic use cases, just pushes the envelope forward.
of intense debate. While banks and regulators have
been wary of bitcoin and other virtual currencies, With so much happening around blockchain, Let’s
their underlying technology, namely a distributed Talk Payments (LTP) and Infosys Finacle partnered
ledger technology, has been attracting the attention to explore the next phase in the adoption of this
of banks and startups and technology companies. The technology through a survey among key decision
disruptive potential of blockchain is widely claimed to makers in financial institutions.
be equal to that of the Internet.
Thus survey aims to understand the following, w.r.t
The debate has now moved onto the topic of blockchain and the financial services industry:
adoption and on how to implement a solution using
blockchain. The technology has created a new set •  Investments, focus areas, and use cases
of opportunities for banks to partner with startups
exploring niche business areas. Banks are eager to •  Adoption strategies
grab these opportunities, and are open to testing and
cementing partnerships provided these firms have • Opportunities and challenges in
common goals and vision. implementation

Top banks across U.S., Europe, Australia, Asia and The survey respondents included more than 100
Middle East are exploring blockchain applications business and technology leaders from over 75
by either partnering with startups /technology financial institutions ranging from small regional
partners, or by creating innovation labs to test their banks to multinational banks.
proofs-of-concept. Santander, for example, claims
to have identified 20 to 25 use cases, with a focus Our findings are summarized in this report.
on international payments and smart contracts.
Barclays is reportedly focusing on 45 internal use case
experiments. Infact, the recent pilot implementation
success by India’s largest private sector bank by
consolidated assets, ICICI Bank, and the leading

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3 Highlights of the report – Key findings

•  50% of banks surveyed have already invested in blockchain

technology or will do so in 2017

• 
Average investment in blockchain projects in 2017 is expected to be
about $1 million

• 
33% of respondents expect to see commercial blockchain adoption
by 2018, while a majority of 50% expect to see it by 2020

• 
Majority of banks surveyed, about 69%, are experimenting with
permissioned blockchains, while 21% plan to use hybrid variants

• 
Cross-border payments, digital identity management, clearing and
settlement, letter of credit process and syndication of loans are the
top 5 use cases chosen by the respondents as the most likely for
commercial adoption

• 
About 50% of the banks surveyed are either working with a FinTech
start-up or technology company to augment their blockchain
capabilities, while another 30% have opted for the consortium model

• 
‘Readiness of ecosystem’ and ‘Lack of governance models among
stakeholders’ collectively emerge as the top 2 challenges

• 
‘Improved transparency among counterparties’ and ‘reduction in
settlement and transaction time’ are the top 2 benefits

• 
74% of banks surveyed, stated, that executives driving blockchain
initiatives in their organizations are either Chief Technology Officers,
Chief Innovation Officers or Line of Business Heads

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4 Investments, Focus Areas and Use Cases

Innovators, Early Followers and

Late Adopters
About 50% of the respondent banks indicated that
they are waiting for the technology to reach a more
mature stage. These banks are planning to explore
limited use cases in the short term before making
wider investments.

35% of the respondents fall under the category of

‘Early Followers’. These are financial institutions that
have identified business cases for blockchain that are
suitable for their organization strategy and are looking
to invest in the near future. Planned investments from Innovators
15%
these banks are in the range of 1 million USD to 10
million USD.
Already investing
The true ‘Innovators’ have already started blockchain
initiatives in full scale with either dedicated teams to
support these efforts or through partnerships with
technology startups or companies. About 15% of the Early Followers
35%
banks surveyed fall in this category.

s
They have already invested funds of over 10 million Building busines
ca se. Will inve st
USD, to support the initiatives and are experimenting
in 2017
with use cases beyond the traditional ones like cross-
border remittances and clearing and settlement.
Seizing early mover advantage, these banks have
taken the first step towards forming and defining what
could well be one of the first blockchain ecosystems in
ters
their industry. Late Adop
50% will invest
Exploring, logy
nce techno
in future, o
matures

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Investments in blockchain are expected to rise in 2017
A majority of the respondents (77%) indicated that their investments are in the order of 1 million USD.
4% of the respondents have invested more than 10 million USD. However, this proportion is set to
increase - the respondents who indicated that their investments are in the 1 to 10 million USD range
(19% of respondents) plan to increase investments in blockchain-based technology enablers.

Bank’s investments in blockchain

77%

35%
19%

4%

> $10 Million $1 to $10 Million < $1 Million

Technology, innovation and business heads drive

blockchain investments
Banks’ blockchain investments are currently being driven from several directions. While a majority
of the stakeholders are CTOs or Innovation Officers, Line of Business Heads are also increasingly
becoming key decision makers in their firm’s blockchain journey. CTOs are driving the blockchain-
based initiatives in 28% of the banks surveyed, while in 23%, innovation officers lead the way.
Because of the variety of ways in which blockchain can be applied, it has caught the eye of business
heads and accordingly, in 21% of the respondent banks, the initiatives are being managed by

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Heads of Lines of Business. A small fraction of the respondents (16%) indicated that the initiatives
are managed by the offices of Chief Information Officers, mainly because they are involved in other
business systems as well.

Who drives blockchain investments in banks and financial institutions?

5% Chief Technical Officer

7%
Chief Innovation Officer
28%
16% Line of Business Heads

Chief Information Officer

Chief Digital Officer

23% 21%
Others

Private Permissioned Block- chain is the popular choice, with a

whopping 69% of banks in their favour
The security of customer and transactional data
is paramount for Financial Institutions. Public
Information Snippet
blockchains, come with security concerns and
therefore a majority of banks are adopting private
• Public blockchain is a completely
permissioned blockchains to address security decentralized blockchain where anyone can
concerns. Private blockchains also offer greater join the consensus process.
flexibility, dependability and adaptability compared to
public blockchain infrastructure. • Hybrid blockchain is a consortium
blockchain where the consensus process is
• 
69% of banks surveyed indicated that they are controlled by a preselected set of nodes.
experimenting with private blockchains. Apart
from data security concerns, banks are also faced • In a private blockchain, access permissions
with ambiguity on regulatory approval for public
are more tightly controlled, with rights
blockchains as these do not provide blacklist checks
to modify or read restricted only to a few
Know Your Customer /Anti Money Laundering
checks, leading to operational risks users.

• 
About 21% of banks indicated that they have
adopted or are planning to adopt hybrid Types of distributed ledgers
blockchains that are suitable for financial
services industry

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Cross-border payments, digital identity, clearing and
settlement - the most preferred use cases for blockchain
application
Banks have explored a variety of blockchain use cases in financial services – both traditional and
non-traditional. The most preferred use-cases are the ones which help lower costs and complexity in
business processes and increase operational efficiency, as this survey reaffirms.

Cross-border payments, digital identity and clearing and settlement, closely followed by Line of
Business use cases like invoice management and Letter of Credit are the top 5 use cases chosen by
the banks.

Priority use cases testing and application for a financial institution

Cross Border Payments 4.10

Digital Identity Management 4.00

Clearing & Settlement 4.00

Invoice Financing 3.90

Letter Of Credit Process 3.80

Secure Documents 3.80

Smart Contracts 3.70

Collateral Management 3.70

Peer To Peer Payments 3.70

Syndication Of Loans 3.60

Open Account 3.50

Otc Derivatives 3.40

Repurchase Agreements 2.90

0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50

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Partnerships key to blockchain use case
implementations
A distributed technology platform such as blockchain can achieve its true potential only when
supported by a network of businesses and partnerships. It comes as no surprise therefore, that
a majority of banking respondents (80%) indicated that they are partnering with technology
firms, FinTechs, peers and central organizations for developing blockchain applications. For
building a network around blockchain, the preferred route for majority of the respondents (49%)
is collaboration with already existing networks.

Developing business applications using blockchain

Working with consortium of banks

Collaboration with fintech partners

Collaboration with established

Tech partners
30%
28%
Being developed by
22% internal team

20%

Building network with other participants

Participate in networks built by

other institutions

Actively explore possibilities of building

a network grounds- up with business
partners
49%

31% Both

20%

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5 Adoption strategies

Commercial adoption not too far: 80% of banks

expect large commercial adoption by 2020
According to the survey results, 80% of the respondent banks expect the financial services
industry to adopt Blockchain-based applications commercially by 2020. And the top business
areas where banks expect this technology will be applied for a commercial offering are cross-
border remittances, digital identification, invoicing and trade finance.

The banking industry has picked up blockchain as one of the core technology areas of the future
and 33% of the bankers in the survey said they will see a commercial offering by the end of 2018,
while 49% indicated that they expected to see it by 2020.

Timelines for commercial adoption

6.0%

12.0%

33.0%
In 2018

In 2020

In 2022
49.0%
No Visibility

Use cases – which are the ones headed for

production first?
Over the last 5 years, organizations have steadily experimented with various blockchain use cases.
Interestingly enough, many of these areas have not reached the production stage. As adoption
increases, some areas have emerged as front-runners in the race to production. According to the
survey respondents, cross-border payments is the clear winner in this race with the respondents
indicating that they expect commercial solutions to emerge in this area in 2017 itself.

Apart from this, almost 7 use cases have gained equal mindshare among banking firms namely –
Trade Finance (LC and Open A/C), Syndication of Loans, Clearing and Settlement, digital identity
management, invoice financing and smart contracts. Respondents expect commercial solutions in
all 7 of these areas.
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Priority areas for blockchain technology application, commercially

Cross Border Payments 4.10

Digital Identity Management 3.50

Clearing & Settlement 3.50

Letter of Credit Process 3.30

Syndication of Loans 3.20

Invoice Financing 3.20

Smart Contracts 3.10

Peer to Peer Payments 3.10

Repurchase Agreements 2.90

Collateral Management 2.80

Open Account 2.80

OTC Derivatives 2.80

Secure Documents 2.80

0.00 1.00 2.00 3.00 4.00 5.00

Based on the responses from the surveyed banks, we believe, that the banking industry should see
blockchain projects going into production in 2017 itself – albeit in a small way and for simple use-cases.
However, the impact at scale, would be felt only when there is adoption across the ecosystem which is still 2–5 years
away by 2020. Early adoption would confer benefits in terms of blockchain capabilities and readiness from a process
and technology perspective.

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If you notice the logical progression of 2-5 years we will see more of inter-bank use cases, and
implementation of use cases in the diagram below, cases that involve regulators – such as trade finance.
it reiterates that adoption of blockchain will begin at Beyond 5 years, we will see the larger adoption of
the most convenient areas (that will help banks not this technology in the financial services and banking
only experiment to test the technology, but can be ecosystem.
done within a budget), slowly progressing towards
more transformative areas. This is because banks and Progressively, by 2020, the adoption of Blockchain-
Financial Institutions want to create networks with based applications will increase in several business.
already established partners in the industry who are We will see the larger ecosystem adopting this
already aligned with their process, or internally. technology which will include players like the
government, corporations from other industries and
Accordingly, we believe, the first use cases that will see possibly even end consumers. For example, if we
the light of the day from now to the next 2 years are take the case of trade finance, a lot of corporations,
intra bank use cases, or use cases which can be tested shipping companies and governments will start using
with incumbent inter-bank relationships. These are the ecosystem built on this technology and adopt the
most likely to be in areas such as digital identification new processes.
and cross border payments. Moving on, in the next

Time Frame

> 5 years

2 to 5 years

0 to 2 years Consortium &

Open
FinTech Platforms

Incumbents Intra

Regulators X-Border
Inter
Digital Id
Payments

Letter of Credit Invoice Discounting Syndicated Loans

Asset
Digital Currency Insurance Claims Compliance
Rehypothecation

Timeframe, scale and adoption of blockchain

Impact technology in the financial services industry Adoption
at Scale

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We also asked banks about the key challenges and regulators, compliance keepers, banks and FIs – all
opportunities of the implementation and commercial such institutions collaborate along with technology
adoption of blockchain technology in this industry. firms. Without such deep co-creation, a single
entity, be it technology firms, banks or regulators,
While ‘readiness of ecosystem’ and ‘integration with cannot create a meaningful implementation of this
existing banking systems’ were voted the most technology for business.
pressing challenges, a majority of banks identify with
one or more of the challenges on the list equally. • Lack of understanding of the technology – though
Further, with regulatory and compliance policy not as widespread as earlier, FIs are still unaware
pressures, financial institutions find it difficult to invest of the technology and the difference between
effort and capital in new technologies. blockchain and bitcoin. There is also wariness
in accepting this technology which is widely
Let us have a deeper understanding of some of these misinterpreted as an alternative banks.
challenges.
• Delay in decision-making – the delay in decision
making by business heads of FIs and regulators is

6
causing this potential technology to languish at

Opportunities and various levels in the POC stage. FIs have to make a
business decision to apply this technology to real

challenges for
world processes and business areas. To do this,
they have to initiate dialogue with regulators and
technology providers
Financial Institutions • Technology limitations – the technology in itself,
is a great simplifier that reduces the overhead of
Top 2 Challenges: ‘readiness financial processes - from international money
transfers, to complex derivative contracts. However,
of ecosystem’ and ‘integration in its current state blockchain has a few limitations
of blockchain applications in such as scalability at lower costs, transaction finality,
or manageability. These problems arise as the
existing ecosystem’ financial service ecosystem has very few built-in
systems for governance, in addition to an inability to
We also asked banks about the key challenges and meet compliance requirements in the case of public
opportunities of the implementation and commercial blockchains.
adoption in blockchain technology in this industry.
While ‘readiness of ecosystem’ and ‘integration of
blockchain applications in existing ecosystem’ were
Top 2 opportunities :
polled the most pressing challenges, a majority of ‘improved transparency
banks identify with one or more of the challenges on
the list equally. among counterparties’ and
‘reduction in settlement and
Following is a detailed description on the polled
challenges. transaction time’
• Lack of co-operation between banks/FIs – Inspite of these challenges, banks still view blockchain
Blockchain as a technology is network-based and as an opportunity. Most respondents that were polled
for any such technology to gain competence in see speed, transparency and automation as the top
a business sense, parties in the industry should benefits of using this technology. Progressive banks
co-operate with each other to implement its most- around the world tout blockchain as a game changer
suitable use. Though world over there are a lot of and therefore these results showcase their optimism
consortiums that are emerging/have emerged, the and excitement in leveraging this technology for a
co-operation has to extend to the next level, where better business.

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Challenges in implementing blockchain technology

0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5

4.01
3.87
3.30
3.12
2.89
2.67

Readiness of ecosystem and need for Lack of maturity of

cooperation within banks blockchain technology
Integrating blockchain applications with
Lack of clarity on regulatory requirements
existing enterprise applications

Lack of governance models among Data privacy / Security issues

stakeholders

Opportunities in using blockchain technology

0 0.5 1 1.5 2 2.5 3 3.5 4 4.5

4.13
3.41
2.90
2.90
2.16

Potential for creating Reduce settlement and

new investible assets transaction time
Automation of processes Improved transparency
across enterprises among counterparties

Reduce transaction costs

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7 The way forward

Through the survey results we can safely assume that blockchain technology would
be a key focus area for banks for the next 2 years. It is no longer a question of whether
banks will adopt blockchain, but when and how they will implement it. In our view, there
are two approaches that banks are looking at – internal and external implementation.
Banks might start with use cases that can be tested internally and build their blockchain
capabilities before going ahead and collaborating with their peers. In terms of
external implementation, there are already a number of banks that have started their
experimentation in collaboration with technology partners and by forming consortiums.
Following is our brief assessment on how we see the adoption of blockchain unfolding in
the next decade.

Phase 1 – Understand Blockchain's Value for Financial

Services Industry
2014 - 2016
• Banks and financial infrastructure intermediaries formed
industry groups to discuss opportunities
• Bank-led closed user groups with peers, technology
partners, and FinTech
• Industrywide collaboration projects on the lines of R3
and Linux Hyperledger Foundation

Phase Phase 2 – Proof of Concept

2016-2018
• Identify key use cases for POCs that have a specific
impact on business, and assess if blockchain can scale to
reduce costs while maintaining security
• Engage with regulators, auditors, peers, and ecosystem
to focus resources on most important and inefficient
processes that will benefit from blockchain adoption
• Goal of POC must be to assess if blockchain based
processes offer benefits beyond existing technologies in
terms of performance, cost, speed, and scale
• While there may only be a couple of viable blockchain
consortiums left standing in 2017, industry players will
have to cooperate and collectively agree on open
standards that are flexible and versatile.
• Governments and regulators will also play a key role,
protecting consumers yet fostering innovation.

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 Phase 3 – Shared Infrastructure Emerges
2019-2020
• Industry players start to adopt technology products that
may be specifc to business lines
• Leveraging shared infrastructure, APIs and interfaces for
a wider use of technology
• As blockchain implementations begin, we’ll see a
paradigm shift toward standardization and
consolidation
• FIs that were once in competition will realize the
benefits of a unified approach for various business
operations, such as accelerated trade processes,
enhanced detection, and better data management.

Phase 4
2021-2025
• Proliferation of blockchain-based networks
• Interoperability standards and communication channels
will be further strengthened

Any implementation or POC for blockchain would need collaboration between banks,
platform providers, FinTechs, and regulators. Regulators will have to provide clarity on
policies while Platform/FinTech providers will lend themselves to building the technology
infrastructure. The entire ecosystem needs to come together for blockchain technology to
proliferate.

While blockchain still maybe some way away from massive mainstream adoption, banks are
already seeing the benefits from the implementation of POCs. However, blockchain isn’t
merely a disruptive technology. When adopted, blockchain will create a new foundation for
banking processes. It will introduce efficiency in banking transactions and change the way we
exchange value and money in the society.

The potential that blockchain offers in terms of cross-industry collaboration is unmistakable

and it won’t be long till we start seeing blockchain move out of POCs into production.

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Finacle is the industry-leading universal banking solution from EdgeVerve Systems, a wholly owned subsidiary of Infosys. The solution helps financial institutions
develop deeper connections with stakeholders, power continuous innovation and accelerate growth in the digital world. Today, Finacle is the choice of banks across 94
countries and serves over 848 million customers – estimated to be nearly 16.5 percent of the world’s adult banked population.

Finacle solutions address the core banking, e-banking, mobile banking, CRM, payments, treasury, origination, liquidity management, Islamic banking, wealth
management, and analytics needs of financial institutions worldwide. Assessment of the top 1000 world banks reveals that banks powered by Finacle enjoy 50 percent
higher returns on assets, 30 percent higher returns on capital, and 8.1 percent points lesser costs to income than others.

To know more, visit www.finacle.com

EdgeVerve Systems, a wholly owned subsidiary of Infosys, develops innovative software products and offers them on premise or as cloud-hosted business platforms.
Our products help businesses develop deeper connections with stakeholders, power continuous innovation and accelerate growth in the digital world. We power
our clients’ growth in rapidly evolving areas like banking, digital marketing, interactive commerce, distributive trade, credit servicing, customer service and enterprise
buying.

Today EdgeVerve products are used by global corporations across financial services, insurance, retail and CPG, life sciences, manufacturing, and telecom. Finacle, our
universal banking solution, is the choice of financial institutions across 94 countries and serves over 848 million customers – estimated to be nearly 16.5 percent of the
world’s adult banked population.

To know more, visit www.edgeverve.com

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