Blockchain, a technology that can not solve banks' main problem: the user experience

After the hype over Bitcoin, now it’s Blockchain’s turn. I remember, 2-3 years ago, when many VCs were asking my opinion about Bitcoin. I was quite bearish, mainly because an un-regulated currency that goes against all know-Your-Customer (KYC) and Anti-Money-Laundering (AML) principles could hardly be massively adopted. Then, they changed their opinion to, "Bitcoin has low value, it is Blockchain, the technology behind Bitcoin, which may disrupt the financial industry". Let’s see.

Let's go back to basics with a simple question: "Does Blockchain offer anything to the end-customer that existing technology could not?". The answer is clearly NO.

Think about remittance: many argue that Blockchain can help facilitate global and instant payments (in a matter of seconds) at extremely low cost compared to traditional channels, such as SWIFT or ACH. That is true, but for one single reason: banks have under-invested in global payment networks for decades. Sending USD10 from NY to Sydney for 1 cent and in a matter of seconds is possible without Blockchain. The problem here is that the banking oligopoly had no financial incentive in investing in payment networks while profits on cross-border payments were ludicrous!

Think about other applications of Blockchain like smart contracts. It is exactly the same thing. We do not need Blockchain to be able to build and offer smart contracts.

 My understanding is that all the hype surrounding Blockchain, all the VC money invested, all the start-ups created, and the fear that the financial industry could be disrupted by Blockchain technology (something I hardly believe), has forced banks to move and investigate what they can get from Blockchain. Settlement, for example, is a one such example for use by for banks, considering it is based on legacy systems, and so relatively slow and inefficient. But settlement is nothing else than a back-end process, something that had low value for end-customers.

I had a chat this week in the US with someone working for R3, the bank consortium working on Blockchain technology. He came to the same conclusion as me: Blockchain may have interesting use for certain cases in the financial industry but it does not add any real value to the end customer. 

So the question is: can a technology that does not add any real value to the end customer really disrupt the industry? I do not believe so. Do not misunderstand me, re-building legacy settlement technology around Blockchain, for example, is something with huge potential, considering the size of the industry and the amounts exchanged. Companies able to build that kind of technology will probably be worth billions, but, in the end, it is all about the end customer and something bringing low value to the end customer can hardly disrupt the industry. Disrupting the industry requires completely rebuilding the user experience, bringing full transparency, changing the channels people use to buy financial products or inventing new products. 

In the end, people do not care about technology for technology’s sake (except maybe some geeks); people trust companies and brands that offer products and services. No one cares about which technology JPMorgan uses to settle financial transactions but people trust JPMorgan because it is one of the largest financial institution in the world and it is the one that “survived intact” the two worst financial crises in the last 100 years (1929 and 2008).