By Dipo Faulkner
In today’s fast emerging economic zones, technology adoption can be a journey of faith into the unknown, riddled with the conflicting priorities of modern societies, bouts of human and institutional inertia and not to forget, legal and regulatory considerations.
Having grown up in Nigeria, I have first-hand experience on how complex or excruciatingly difficult real estate transactions can be.
I stand to be corrected but the multibillion-dollar property and real estate sector, a key sector of the Nigerian economy, is largely driven by paper-based systems and processes, and the industry could do better with the aid of information technology. Advanced technology solutions will help tidy things up, and make transparency, trust and peace of mind a permanent feature of dealings in the sector.
Every document or financial transaction that needs to be exchanged, settled, confirmed, validated or signed has a similar element of friction. It is obvious that when these sorts of bottlenecks are eliminated, significant economic value is unlocked.
In any property deal, the number of participants that are required to be involved from realtors, banks, insurance companies, brokers, land registries, government tax authorities, and other intermediaries is incredible, not to mention the ever-present danger that the seller of the property may not be the actual owner of the property being sold.
In any case, I suspect this is not a problem unique to Nigeria. The respected Peruvian economist Hernando De Soto believes that up to five billion people worldwide suffer from lack of title to their property. He reckons that this global scenario results in more than $20 trillion of capital that is outside of the traditional financial services ecosystem.
Banks have a key role to play in this dynamic. Their functional and statutory obligations mean they must galvanize social harmony, business investment and economic value for their diverse stakeholders.
I am aware that Nigerian banks and financial institutions across Africa have consistently sought for ways to resolve key sector issues like this one. But before supporting economic activities, these banks must ensure that their product and service delivery value chains are driven by a creative workforce and technology innovation.
Also, I know from my interactions with chief technology officers in the financial services sector that their ongoing investments in technology systems has helped the sector to build operational resilience into their systems even they begin contemplating adopting new concepts and practices like blockchain.
Designed to inject the trust element in technology-enabled transactions, blockchains are built on shared ledgers where participants write transactions in near real-time to an unbreakable chain that becomes a permanent record of an asset or transaction. This is viewable by all parties in the transaction. Blockchain thus allows businesses to work together in a new way resulting in lower cost, faster transactions and less risk.
In this way, blockchain can be used by individuals who want to complete transactions involving multiple parties.
Large organizations may also want to use blockchain to collaborate across organizational silos. Ecosystems could tap blockchain to handle complex transactions across different jurisdictions, or governments may want to use it in the service of citizens.
This will have a profound impact, bringing wholesale change to organizations, ecosystems and economies. My personal view, also echoed by other experts, is that blockchain technology will do for transactions what the internet did for information — and in the relatively near future.
My thoughts on this subject seem to have been authenticated by two recent studies released by IBM’s Institute for Business Value (IBV) which found that banking and financial markets are adopting commercial blockchain solutions much faster than initially expected.
15% of banks and 14% of financial market institutions globally interviewed by IBM plan to adopt full-scale, commercial blockchain solutions in 2017. And within the next three years, 65% of banks expect to have blockchain solutions in production.
Consider how assets from cars to contracts, art to corporate bonds — even identity-based assets, such as health, product provenance, or tax records — can be shared, exchanged or transferred on a blockchain platform with greater efficiency and privacy.
As transaction costs plummet and the way organizations are governed matters more and more, blockchains will create a new distributed form of business governed and managed transparently through smart contracts that include agreed upon by-laws.
In the emerging blockchain economy, the role of third-party intermediaries to broker trust and/or to reconcile will increasingly be called into question as we reinvent new processes that eliminate the need for such reconciliation and intermediation.
While blockchains can powerfully improve businesses’ efficiency, trust and value, executives must carefully evaluate where blockchains can be used to gain improved efficiency and support new business models. I would therefore recommend that businesses answer these three questions:
- How fast should we move? Early movers in the blockchain adoption race may have an advantage as they are setting business standards and creating new models that will be used by future adopters of blockchain.
We’re also finding that these early adopters are better able to anticipate disruption, fighting off new competitors along the way.
- How can we scale across business networks? Once blockchain technology has scaled across multiple participants, they can anticipate achieving the kind of network effects that can drastically reduce the frictions that curb growth.
- How can we innovate with new revenue models? As new entrants and business models emerge, banks may be forced to defend current revenue streams or move to where the money will flow next.
New revenue models must anticipate the potential for disruption in areas core to the business today and in the future.
As the market evolves, blockchain technology may add at least one new revenue stream; and so, the potential to monetize reference data looms large.
My take is that African businesses, especially banks and non-bank financial institutions, will be the first set of enterprises to get on board the blockchain train, and fervently exploring the potential uses of blockchain technology.
Beyond banking and real estate, other economic sectors including manufacturing, retail and government agencies will pick and choose lessons from these trailblazers, recalibrating their needs and expectations as they gradually adopt blockchain technology.
In other climes, the Japan Stock Exchange and London Stock Exchange Group are two of the leading bourses collaborating with IBM to explore blockchain to manage risk and bring additional transparency to global financial markets.
Dipo Faulkner is the country general manager, IBM Nigeria.