We Believe That DLT Would Bring Out New Industries And Services: John Ott
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“We believe that Distributive Ledger Technology would bring out new industries and new services.” Says John Ott, Partner, Bain & Company (Shanghai) in an interview with BW BusinessWorld.
What is the concept behind the Distributive Ledger Technology?
DLT or the Distributive Ledger Technology means a lot of things depending on the used cases, depending on the industry and depending on the problems that it’s trying to solve. The DLT has a number of different components that people mean different things for different use cases is because a lot of it is actually dependent on the particular used cases. There are two points that are common: There is some sort of a ledger system and that ledger is distributed. The second is that there is some sort of digital verification that consists information while setting up the ledger which allows the system to verify the right transactions. Apart from these 2 common points, there are other factors like the asset class. There are many different types of asset classes which consist of currency where a token is created around the movement of its prominence. Asset classes can be everything from physical objects to non-physical objects.
There is then a big question around who gets to participate in this blockchain or the DLT and who gets to see it and put the information because they are two different roles to be played. The next question is around a consensus mechanism and how do you know the information is written to the chain is actually accurate. For instance, in private systems, if banks have a private system, only their members are allowed to see the whole chain but when it comes to public systems there are other privileges in which certain parts of the chain consisting the digital documents can be viewed publicly. The mechanism on how many nodes, who sees it and writes to it and how do you agree on legitimate transactions are pretty important and have government structures applied to it.
The last but not least are the smart contracts which are very, straightforward. If you have a program which is written and somebody performs what is agreed in the contracts. It follows up on the work done by everyone involved in the business and makes sure they get paid for their duties performed. The way the technology is set up it is very easy to see smart contracts becoming a common theme. That is why when people say DLT they can mean many different things and we believe that this will be transformational in financial services as well as in other industries. DLT is both overhyped and underappreciated and this will take time for all the pieces to fall into place for trade finance, international payments, domestic payments etc. When the solutions are available, the cost benefits would be enormous and tremendous amount of information would come out of the chain. We believe that there would be new services and industries that would come out of this technology.
What would be the impact of DLT and how will it prove to be transformative?
DLT will only work on a problem that will be solved and we’re trying to look at the problems it’s planning to solve. If there’s a very clear set of pain points and this technology helps to solve those we will see the growth opportunities. There are pain points around time to approve letters of credit, payments, cost of verifying the identity of an individual and information. All of these are right opportunities for faster prophecies and 30-40% lower cost and less compressed documents. Finally, new information will arise and create new services but also the procedures will speed up and reduce cost again. For instance today we know in the reconciliation for letters of credit there are massive amounts of errors with typing in wrong identity numbers and addresses. This causes a lot of time and reworking for banks and that impacts insurance as well if you can get to move this faster, the procedures would also go through at a lower cost with a minimum number of errors.
We have seen that as governments around the world are trying to understand more transactions, whose doing it and the tax being paid they are trying to move tax from being at the end of the year. Distributive Ledger Technology around the world is the idea of moving things closer to the activity that’s actually being taxed.
How soon would Asia adapt to blockchain?
We did a survey across Asia and in India which says that there will be a big impact in the coming 3 years. However, people who believe that are going to wait because they themselves are not sure about placing their bets. They are not really sure which partners they need to be working with, the use cases and the technology standards and consensus mechanism. Banks are experimenting and they are creating multiple use cases to initiate a belief in partners. Hence the number of experiments are going to increase and see what is benefiting them in the market and out money behind those cases. Hence the opportunities are huge especially in the Asian continent and there will be more used cases which will back the future of blockchain.
What are the ways in which organizations can adapt to DLT?
I think what banks need to do is to understand what used cases are being tested right now globally and need to compare that to the risk factors in their own business. That creates better understanding with respect to how much money they make from trade finance and even financial markets. They then need to get involved in the technologies because its only by going to conferences and talking to fintechs and taking stakes in their companies is when they would begin to see similar technologies. This would also increase their understanding of the market and take the same knowledge and apply it back to their own financial institutions and say let’s do a readiness assessment. It’s mainly sorting the noise and understanding what technologies can they begin to have a market plan for. If the companies can work by following ledgers they can cut down 30% of the total investment just to clear the errors out. The information generated by these ledgers will allow automated underwriting and the whole process can be set up as a smart contract.
What are the current loopholes in banking technology?
There are certainly some constraints in the current time regarding the technologies and their capabilities. However, there are a couple of things that need to be agreed upon: 1) Amount of processing on a distributive ledger. 2) Whether or not it will be led by fintechs or bigtechs when it comes to implementing the technology and depending who has the wallet for experimentation. 3) Equal cost distribution.
What is Bain & Co. pursuing during this time? Is the focus more towards experimenting with technology?
We are focusing on blockchain and the technologies around it that can create a more digital-friendly ecosystem. Financial services are where we are very large globally and also investing in Asia building our teams across the continent and in India, we work with banks, insurance companies and asset managers. We’re very keen on working with companies that are interested in driving significant results in their companies and also their industries. Understanding and spreading awareness on DLT however is very exciting because we like to work towards creating new opportunities and industries. When I was in Europe talking to my clients about the technology, the companies they were bringing in are of Indian origin and there is a huge base of staff in India. Many people don’t realize this but in the last 10 years Indian entrepreneurs and companies have really taken the lead. We are always talking about the latest and the greatest Indian developers who are making a difference and for us again the market here is huge. If Indian companies, financial institutions and technology create the excitement, then it can be a new wave of growth for the country.
