3 min readMany financial companies have already invested or plan to invest in digital ledger technology (DLT). Expenditure on DLT companies topped $4.5 billion in 2017, with more than 40% of that total generated in Q1 2018 alone. While this trend looks to continue indefinitely, many banks and insurance companies remain unsatisfied with results and have shelved solutions.
Why do DLT solutions fail?
Newly developed DLT solutions often fail because they lack a clearly defined and validated strategy. For sustained success, financial services companies must align DLT potential with relevant use cases.
Consider the following examples:
Reduction of fraud
The banking sector is experiencing an increasing volume of fraud and cyberattacks. The sector’s main vulnerability is the centralized database where all data is stored. Unauthorized access to the database poses huge risks. DLT dramatically eliminates the danger by providing technology with decentralized storage. A fraud or cyber-attack becomes much more difficult to execute as it requires many nodes to be attacked, rather than one.
International business operations acceleration
Moving products along the supply chain takes time, information, and resources—a very intensive process. Dependi ng on the type and value of the commodity there might be significant expenditures for quality verifications and auditing along the way. In addition, there are serious losses in the case of late impropriety detection.
Trading operations across borders are an even more complex management issue for all involved (banks, importers, exporters, financiers, insurers, etc.). Using DLT solutions introduces a new level of transparency and efficient trade finance operations, significantly accelerating trade confirmation and post-trade settlement processes.
Trading platforms
Trading platforms can be built on top of DLT with no need for a centralized trust or intermediary, and no risk of double spending within the securities trading supply chain. Trading platforms can operate with digital tokens that are transparently tracked on a blockchain-based exchange. Because the digital token acts as certificate of authenticity, the forging of securities is more difficult.
Payments
Perhaps the most applicable use case is payments between banks and other banks, as well as between banks and their customers. Using DLT technology can save a substantial amount on costs while improving the security and speed of domestic and cross-border payments.
The execution of DLT solutions in a nonlinear, chaotic, and rapidly evolving space requires a very high level of expertise to avoid system failure and related liabilities. It is strongly recommended that a business assess the applicability and model sustainability of the DLT solution before actual implementation. Ideally the business should be guided by DLT and agent-based modeling (ABM) experts such as the PhDs working at SoftServe.
To learn more about ABM and DLT scalability, check out our latest white paper, “DLT 2.0: It’s All About Scalability.”