Oliver Bussmann helps drive large-scale transformation at global organizations in the financial services and high-tech sectors and recently became a strategic advisor to the IOTA Foundation, a European organization that helps big corporates use blockchain technology to create new business models and new revenue streams for the financial services, logistics and supply chain, energy, auto and healthcare sectors.
As Group Chief Information Officer of UBS from 2013 to 2016 Bussmann led a major IT transformation effort, instituted a new group-wide innovation framework and established UBS as a pioneer in the development of blockchain for use in financial services. Prior to joining UBS Oliver was Global Chief Information Officer at SAP for four years, where he also spearheaded significant technological transformation, and was Chief Information Officer for North America and Mexico at Allianz. Previous roles included executive positions at Deutsche Bank and IBM.
He recently spoke to The Innovator about blockchain’s uses in the financial services sector.
Q: What are some of the first use cases for blockchain in banking?
OB: One is the global payments business where there is a significant global transaction volume. The transfers can take several days, the fee structures are high and the error rate is something like 10% to 20% so this why fintechs like Ripple are trying to disrupt that business. Blockchain technology can streamline the payments in real time and allow you to use it seven days a week, 24 hours a day, so the person or company sending the transaction is not limited to the opening times of a bank. The cost is going down significantly and so is the error rate. This is why over 75 banks have joined with Ripple to build a blockchain-based direct settlement network. This will increase.
Q: Where else are you seeing uptake of blockchain technology?
OB: The trade finance environment, which involves export and import, credit from the bank and managing the whole supply chain. The financial payment is not linked to the supply chain so there is a paper version control issue and it adds significant cost because it is manual. Another issue is the payment stream is not linked to the supply chain from a time-to-delivery point of view. With the blockchain, smart contracts can be issued between all the involved parties, delivery can be confirmed and the payment will automatically be executed. Banks are coming together to build these kinds of platforms. A group of banks have gotten together to form Digital Trade Chain, a project to build a blockchain-powered cross-border trade finance platform for small and medium-sized companies in Europe. Another project is doing something similar. Bank of Montreal, Caixabank and Erste Group are joining a blockchain-based trade platform started by UBS and IBM. This is an example of how blockchain allows for real time integration of not only the banking industry but to team up with peers and non-banks and move that onto a platform to enable simplified real-time business.
Q: How big are the efficiency gains?
OB: There are several studies out there talking about how, in global payments, there is a potential to save $50 to $60 billion. With trade finance it is $14 to $16 billion so we are looking at a potential efficiency gain of $90 billion to $110 billon for the entire sector. The low hanging fruit is being addressed first.
Q: Will blockchain also help usher in new types of services?
OB: Blockchain does enable new services that you couldn’t do before. We are moving into a future with IoT and machine-to-machine communication. If you go to a gas station in the future your car will have an electronic wallet and make the payment automatically. The integration of financial services in other industries will become possible in the connected world. When you look a mobility-as-a-service not only traditional players but the non-industry specific players will try and define financial services. We are really at the beginning of a significant market infrastructure change. I am not talking about incremental new functionality.
Q: What impact will this have on banks’ business models?
OB: We will see business models change dramatically. This poses major challenges for banks. They find it tough to break out of traditional thinking in their own industries to work with peers and nonbanks and figure out what is the win-win. The other issue is that now in a connected world of sensors banks have to start working in a real-time environment. When it comes to credit application they will have to make decisions in real-time and not come back in two days. The whole range of decisions made in banks has to be streamlined. The whole legacy environment, the way batch transactions are sent overnight. There needs to be a re-architecting of the way banks do business. With more services coming up in the connected world banks have to open up their environment and integrate other services in a highly integrated real-time open architecture. For what has been a closed ecosystem this represents significant change.
Q: How quickly should banks be adopting blockchain?
OB: The time to act is now. If you think you have time to prepare yourself for the changes ahead you are underestimating the effort to get there. Things are moving very fast in the blockchain environment. If people see the benefits things can happen very rapidly. So prepare what you need to do. There are only 30,000–40,000 technical experts in blockchain. So move before that becomes a bottleneck and you miss an opportunity.