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| Type | Master's Thesis |
| Scope | Discipline-based scholarship |
| Title | The disintermediation in the financial services industry through the blockchain technology: opportunities and challenges |
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| Language |
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| Institution | University of Zurich |
| Faculty | Faculty of Business, Economics and Informatics |
| Number of Pages | 78 |
| Date | 2018 |
| Abstract Text | The blockchain technology came to light some years ago with the growing popularity of Bitcoin. Despite being seen by many as a worthless cryptocurrency, the underpinning technology is truly revolutionary. Indeed, this technology, the blockchain, is likely to be at the origin of a total reorganization of the economy as we know it. The blockchain technology makes it possible to remove a central authority which has recording and checking all the transactions as functions. By the way the network is designed, it is impossible to alter the data stored as all participants agree on what is the correct version of data. Since no middle-man is involved in the process of transactions, this removes the possibility of human corruptibility. Additionally, this middle-man free system enables the network to process transactions on a real-time basis and at a reduced cost. The removal of one of the key functions of the financial services as intermediaries raises the question as to whether the intermediaries were doomed to disappear. The question can be answered in the negative for various reason. First, intermediaries will still be needed in specific situations such as disputes between parties. Their role as arbitrator will be of utmost importance. Then comes the legal responsibility question for illicit actions that would hinder the transactions made on the blockchain. The question as to who will be legally responsible should be addressed by the regulators, but we can assume that the responsibility should be given to the financial institution providing the blockchain-based platform. This thesis limits itself to this assumption and thus further research in this direction would be required. Hence, we understand that the roles of financial institutions as intermediaries are likely to change. What is certain is that banks and other financial services need to be at the forefront of the development of this technology. Indeed, this is crucial as they are likely to be most threatened. Financial institutions have a strong interest in developing blockchain-based platforms that would enable them to make cross-border intrabank payments or interbank transactions. Indeed, there is a huge potential for banks in the field of cost cutting. Additionally, a distributed ledger also offers simplification in auditing as all transactions recorded can be easily traced back. Among the opportunities offered by the technology, there is also the potential for the creation of new products and services. Moreover, the blockchain technology does not stop at value transfers. It is possible to store and transfer assets or property titles and use smart contracts. Smart contracts can be designed so that outcomes are automatized given specific conditions are met. This kind of contract is very promising as it can be applied to other industries than financial services. However, despite all the advantages mentioned above, there are some open questions that still need to be addressed. Among the main challenges, we find regulatory concerns and security. Indeed, there is still a need to determine what is compliant with the Know Your Customer regulations and what is not. On the security level, a hacker being able to access the private key of an individual could make transactions on his behalf. Hence, finding a way to store safely the private key is crucial. Then, the technology being still not mature enough to be implemented, the companies need to keep researching and experimenting. But here comes a key element. What is of utmost importance is to work with other firms, even competitors, to create common platforms. The business models that we know will need to be adapted to take into consideration decentralization of data. The network built by the participants, i.e. the firms, is a prerequisite for creating strong platforms that will meet the needs of each player. Coordination between the firms is central to be able to set up a strong platform and define what standards and obligations should be applied within the network. |
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