Blockchain technology will make it possible to have more transparent, verifiable and rapid processes. So argues Matthias Eriksson, co-founder and chief executive of C8 Technologies. This tech will have a big impact on wealth management in the years to come, he says.
Mattias Eriksson, co-founder and chief executive of UK-based C8 Technologies, talks to this news service about the impact that technology such as blockchain can have on the wealth sector. C8 is an investment platform that offers investor clients access to direct indexing and execution capabilities, end-to-end, across asset classes and investment styles. This news service is looking at how the world of digital assets, and the distributed ledger technology that underpins those assets, continues to evolve and affect wealth managers’ business. We examine how these technologies affect privacy, pricing, efficiency, regulation and customer service. (See this article for a previous example.)
In the broadest sense, how do you see distributed ledger technology affecting wealth management today and in the next few years?
Blockchain technology will make it possible to have more transparent, verifiable and rapid processes. Think how you transfer crypto between two individuals in seconds or minutes compared with international money transfers that take days and are costly and non-transparent. The under 30-year-old generation like crypto a lot as it signals a break with the old, stuffy world, controlled by central government. The wealth management industry has always struggled to hold on to the client asset as it is passed down to children. The development of digital offerings from wealth managers is designed to partially meet this key challenge, but the addition of crypto into the equation means that the goalposts are moving again and suppliers must continue to invest and adapt.
What potential does DLT have for enabling data privacy protection – an obviously important area for private banks, family offices and wealth managers? Where do you see areas such as know-your-client checks being helped, if at all, by this tech? Can blockchain provide any benefits for those trying to defeat hackers?
Tedious KYC processes, for example, could benefit a great deal from blockchain development. If we look at a country like Sweden, we can see how things might change through blockchain use. Sweden introduced a digital banking pass for everyone which frees up its banking system, fosters fintech innovation, and simplifies processes such as switching accounts, onboarding, and empowering the client. It was no doubt easier for Klarna to enter the ecosystem there than in some other countries.
Could blockchain tech help to onboard clients more quickly, but paradoxically, also make it easier for clients to switch firms and hence lead to more staff turnover, as suggested by Deloitte in a report?
Yes, just like open banking, this all gives the client more control of his or her wealth and how they manage it, as it should be.
What impact do you think DLT will have in areas such as banks’ settlement systems?
Blockchain could make settlement a real-time phenomenon, driving down costs, counterparty risks and barriers to obtaining capital. It might also hit banks’ fees, which means that they’ll need alternative sources of income. What’s your take on this? All of the above are likely to happen as technology in financial services has already knocked out layers and lowered costs, driving model evolution. Institutions will need to continue to reduce costs and increase efficiency, but they must concentrate on generating attractive returns for their clients, too. Many seemed focused on the former goals, but too few on the latter.
A lot of people still have very sketchy ideas about what blockchain and cryptocurrencies are, and what they are good for. Is this still very much a niche and, in your view, unlikely to really go mainstream?
The young generation understands it far better, but the underlying technology has been around for a long time. What we see now is that new, solid infrastructure is being built to house administrative services from which everyone will benefit. The key architectural difference is that the control is distributed and transparent. The Bank of England is running a central ledger for sterling which means that the Central Bank and, by association, the government of the day is controlling the currency. Ethereum was built with a goal of preventing that.
Where might cryptocurrencies most likely find a successful home – emerging markets where currencies are often worthless and unreliable? Do you see much traction in more developed economies? Will rising inflation encourage people to hold the stuff?
As per the previous question and answer, the less trusted a government, the more traction non-government currencies are likely to have. Countries that have capital controls like crypto assets least, of course. Ease of transfer attracts users in countries where infrastructure is poor and under-developed.
There’s a patchwork of different regulations around the world. Where’s the most liberal place in your view and where is the most restrictive? What do you think may happen to the regulatory landscape in the next five years?
The final part of the adoption puzzle is security – people need to feel that it is safe to use. Technology needs to deliver quality assurance. Blockchain is still a relatively new technology, but, as bigger, more sophisticated players join in, there is a two-fold effect: the technology improves more rapidly as they invest and their presence brands it as safer.
What do you make of the remark that blockchain is a solution in search of a problem? Does it provide real benefits or is it just another way of connecting people?
As above really. Sometimes blockchain may seem like a solution in search of a problem, but that is probably more because we cannot yet clearly see all of its applications and how they will play out. It does provide real benefits, in our view, rather than just representing a new way of communicating. We see it as likely to remove layers of cost, reduce barriers to entry, open up ecosystems, foster innovation and empower end clients.
