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.