Researchers identify key trends in the blockchain industry

Interest from global financial institutions in blockchain remains strong, but the format of engagement with the technology is changing. This is evidenced by a Mindsmith analytics report with the support of international law firm Clifford Chance.

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Global trends and future business models

Banks are expanding blockchain development in information security, which could lead to a move away from external providers and to banks entering the market themselves as providers of such solutions.

Fintech service providers are actively working on alternative payment systems built on blockchain technology. This marks a step toward creating interbank channels for transferring digital assets.

Insurance companies are experimenting with smart contracts and sovereign-identity concepts, seeing significant potential in the tokenisation of identification data. Their developments could underpin a multi-industry integrator of such systems.

Leaders

Payments giants Mastercard, Visa and PayPal, as well as banks JPMorgan Chase and China Merchants Bank, lead in the scale of blockchain adoption.

The compound annual growth rate of the index tracking financial institutions’ engagement with blockchain from 2014 to 2019 was 168%. In terms of practical deployment of the technology, growth stood at 144%; patenting blockchain inventions – 226%; investment in blockchain companies – 145%.

Key formats of engagement

Financial institutions are moving to practical blockchain deployment. They invest in and patent inventions, predominantly by companies that have already implemented DLT solutions and defined the direction of the technology’s application.

The key objectives of applying blockchain technology are reducing the need for trust among stakeholders, creating a secure value-transfer system, simplifying communication, increasing data transparency, and ease of audit.

Blockchain is most often used in building architectures and protocols for new DLT systems, for processing transactions and managing data.

For many companies, information-security concerns in blockchain interactions are a priority.

Geographic patterns

The most active in engaging with blockchain technology are financial institutions in the United States, China, Japan, France and Canada.

The United States leads in the number of blockchain patents, while Japanese financial institutions focus on investments in relevant companies.

China prioritises both patenting inventions and practical deployment of the technology.

Traditional financial centres—Switzerland and the United Kingdom—lag in blockchain development.

Industry characteristics

Banks are leaders in blockchain engagement and are most actively pursuing practical deployment of blockchain solutions.

Payment systems and fintech providers prefer to patent inventions based on distributed ledger technology. Their further development raises questions about the future position of platform blockchain solution providers, including Microsoft, IBM and SAP.

Insurance companies are less active in patenting developments and prefer to invest in companies and implement DLT solutions in practice. If insurers become drivers of mass adoption of out-of-the-box blockchain solutions, the “blockchain revolution” would quickly spread to related sectors, such as medicine and logistics.

Companies working with securities focus on investments in blockchain companies, while diversified financial institutions prefer to patent DLT solutions and invest in sector-specific companies.

Conclusion

According to Allied Market Research, the market for blockchain solutions for banks and financial institutions was valued at $277 million in 2018. Projections suggest that by 2026 the market capitalization will reach $22.46 billion, growing at an average annual rate of 74%.

Industry standards and an industrial approach to applying blockchain are now taking shape on the traditional market. Solutions are emerging that cover the entire value chain—from internal organisational processes to client applications.

Mindsmith analysts believe that blockchain use will allow the largest financial institutions to maintain leading positions in the industry.

Mindsmith’s methodology is based on an analysis of 234 of the world’s largest financial institutions. Global and regional trends are defined through the analysis of 515 projects, 367 patents and 88 investment deals.

Earlier Mindsmith analysts found that by the end of 2019 the volume of venture investments in blockchain companies had fallen by more than half compared with 2018.

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