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The Disintermediation Challenge: Applying Disruptive Technology in the Finance Vertical

4/7/2017 | Tomas Hoogkamer


Lately, I was reading up on blockchain developments in the finance vertical. Blockchain, as you might know, got its fair share of attention with the advent of the bitcoin crypto currency, but conceptually it can be seen and applied completely separate from its instigator. As such, blockchain technology is generic and certainly not limited to finance use cases.

As you can read on Wikipedia, a “blockchain” is a distributed and open “database” that maintains a continuously growing list of ordered records called blocks. Each block in a chain contains a timestamp and a link to a previous block. By design, a chain of blocks is inherently resistant to modification of the data. Once recorded, the data in a block cannot be altered retroactively. Through the use of a peer-to-peer network and distributed timestamping, a blockchain is managed autonomously. The blocks in a chain record transactions between individuals or parties efficiently and in a verifiable and permanent way. The ledger itself can also be programmed to trigger transactions automatically.

From an organizational point of view and in contrast to today’s centralized (private, permissioned) networks, distributed ledgers eliminate the absolute need for central entities or authorities to certify ownership and clear transactions, enabling the exchange of assets of any kind in real time (T+0). Depending on the use case, a blockchain (ledger) can be open, verifying the anonymous actor in the network, or they can be closed and require actors in the network to be already identified.

Incorporating Disruption: Start Building a New Foundation
The finance industry is currently trying to get to grips with this new development, which some classify as equally disruptive as the advent of internet. There is a need, that is: trust in financial institutions has not been so weak and the public requests the industry mend itself. Besides, blockchain technology opens up opportunities for new parties that do not have the legacy of the incumbent market participants. These new parties build on the technology’s efficiency of decentralized consensus and record keeping, and could start a landslide of disintermediation.

Contracts, transactions, and the records of them are among the defining structures in our economic, legal, and political systems. They protect assets and set organizational boundaries. They establish and verify identities and chronicle events. They govern interactions among nations, organizations, communities, and individuals. They guide managerial and social action. And yet these critical tools and the bureaucracies formed to manage them have not kept up with the economy’s digital transformation. They’re like a rush-hour gridlock trapping a Formula 1 race car. In a digital world, the way we regulate and maintain administrative control has to change. (Harvard Business Review, The Truth About Blockchain, Marco Iansiti & Karim R. Lakhani, January/February 2017)

In response to the game-changing nature of the blockchain as a concept however, I see the vast majority of the finance industry downplaying its possible benefits, claiming blockchain is a technology too foundational to be assimilated into our economic and social infrastructure at a quick pace, leading to deviations from its original intention and pointing out many obstacles. For example, they state existing regulatory institutions do a lot of important work that cannot be alienated from them by some new technology. Or, the technology’s disintermediative capabilities are not what we – as the public – should be looking for. Not to speak about why we should not be looking for the implicit transparency such a technology can bring to the plate, because of privacy.


On balance, this stance leads to ask the fundamental existential question: are current parties participating to kill softly or really to embrace blockchain technology? Okay, starting with half a dozen of different technical implementations so limited and far off its original intention won’t help to get a clear picture of the concept across and in people’s minds, but why not (more) explicitly embrace this new development; why not start incorporating its benefits in current business practices?

My Take

Presuming common sense will prevail, this disruptive technology could inspire the evolution in the finance vertical. One has to reinvent or redefine oneself. Obstacles are only challenges. That is, for privacy’s sake, you could create permissioned (private) transactions within the non-permissioned public ledger, with encryption tailored to specific agreements, still enabling required authorities to filter out whatever their responsibilities require them to keep an eye on. Moving away from the traditional model and infrastructure, moving to what our client’s customers are asking for – hence the relevance to us Tahzoo-eans acting in this space.

Embracing blockchain technology will bring our clients the opportunity to interact differently with their customers, having to spend less time getting data in and information out of their bespoke systems and – because customers do not depend on our clients for this information anymore – spending more time on developing meaningful interactions.

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