The emergence of Tech Platforms across Fintech ecosystems

By Michel Splint - IBM Benelux

Advances in artificial intelligence, blockchain, quantum computing and cybersecurity are poised to transform the financial services industries. These technologies bring capabilities that speed risk modeling, automate fraud detection, ensure regulatory compliance, enable distributed trust, and protect sensitive financial information. Mounting pressures on financial institutions to drive out costs, improve customer experience, compete with emerging players, and comply with new regulation mean that adopting advanced technologies will not be optional.

 These technologies are becoming more and more accessible through new hybrid cloud platforms with unprecedented scalability, agility, and security, optimized for enterprise workloads such as blockchain and AI. This, combined with the increased availability of open source technologies enables solution providers and financial institutions to develop and implement innovative solution much faster than before. 

We believe that the rise of decentralized ecosystems characterized by distributed trust will have the biggest impact on the role of tech companies and solution providers. Various services such as micropayments or escrow can be offered as part of blockchain-enabled, multi-party exchange platforms inside industry ecosystems driving unique technology requirements and new business models. More and more, traditional tech companies and solution providers will be part of these ecosystems and industry consortia or even play the role of “network operator” in these new ecosystems. This will blur the boundaries between Fintech networks and solution providers and create dynamic and open ecosystems of financial institutions and technology/platform providers.

New cross-border Payments Platform includes the ‘unbanked’

A good example of a new tech platform is IBM Blockchain World Wire, a tech platform for cross-border payments. An ecosystem of Banks collaborating with IBM and Stellar (stellar.org) created a new cross-border payments tech platform together. World Wire seeks to overcome the complexities and inefficiencies associated with the traditional methods of cross-border payments and settlements. World Wire uses digital assets on a distributed ledger to circumvent traditional banking intermediaries, reducing capital requirements, clearing cost and time needed to process transactions.

Today, more than 35% of bank revenue is fee revenue. While data is flowing across the internet for free in real-time, cross-border payments take an average of 2 days to be settled across a complex network of intermediaries and include many fees. However, new generations of clients expect near real-time settlement and are less willing to accept excessive fees. Moreover, more than three billion people live below the poverty level of which two billion do not have access to financial services at all. More than one billion of these people already carry a smart phone which could enable them to hold digital value and to do payments but existing clearing and settlement processes and systems are not designed to support this. IBM Blockchain World Wire addresses these issues by providing near real-time and low cost cross-border payments accessible for everyone with a smartphone.

IBM’s World Wire is a payments platform that uses digital assets to settle transactions – serving as an agreed-upon store of value exchanged between parties – as well as integrating payment instruction messages using a single ledger with technical finality. The underlying blockchain technology utilizes the ‘permissioned’ and open-source Stellar consensus protocol (stellar.org). The use of digital assets on a common ledger allows companies and people to send funds between their accounts directly, without going through multiple intermediaries. This reduces the amount of prefunding needed, improve liquidity management, increase speed, reduce cost of cross-border payments and can serve the ‘unbanked’ population in the world.

“we.trade” platform transforms trade finance

Another example of emerging tech platforms is “we.trade”. A consortium of nine of Europe’s largest banks (Deutsche Bank, HSBC, KBC, Natixis, Nordea, Rabobank, Santander, Societe Generale and UniCredit) built a platform to simplify and facilitate domestic and cross-border trade for small and medium enterprises in Europe, while helping to increase overall trade transaction transparency.

In this case, the platform is built on the IBM Blockchain Platform powered by Hyperledger Fabric, an open source blockchain framework hosted by the Linux foundation. The solution provider IBM built and hosts the solution and is in fact also the “network operator”.

The platform will increase access to financing by infusing cross-border trade transactions with accountability and transparency. The platform can support customers from all banks in the consortium and helps equip SMEs to initiate trade with new partners domestically or in other European markets. With we.trade, SMEs will have access to an easy to use platform that provides a consolidated view of trade transactions. This in turn helps promote accountability in transactions, gain access to capital and contributes to reducing some risk. we.trade also optimizes some administrative tasks for SME customers by digitizing the entire supply chain process from order to settlement, and allows trading partners to track and trace transactions as they are processed.

Where do we go from here

We believe that technologies such as blockchain and monetary digital assets used within interconnected networks and ecosystems are becoming the heart of the new global financial infrastructure. Tech platforms across Fintech ecosystems will emerge and these will be more and more interconnected.

 Although tech companies and solution providers will continue to build and run solutions for specific use cases within financial institutions, they will contribute or are part of emerging ecosystems and tech platforms. Traditional development and systems integration will be extended with new roles such as network operations.