3 Blockchain Companies Targeting Financial Services
In a recent article, we provided a simple explanation of “blockchain technology” and learned that there are many applications for blockchain outside of the most popular usage “Bitcoins”. According to an article by the WSJ, analysts at Autonomous Research estimate that within five years, blockchain could theoretically cut $16 billion from the $54 billion spent globally on clearing and settlement of trades. Most of this “back office” work has been quietly pawned off to “emerging market centers” (EMCs) like Mumbai and Manila, which while resulting in major cost reductions, has created “talent farms” of recipe driven knowledge workers who are bored with their mundane jobs and job hop for 30% wage increases because of high wage inflation.
The cost advantages of EMCs are decreasing every year while processes aren’t necessarily improving. If institutions can eliminate the need for manual back office settlement functions entirely, a tremendous amount of money stands to be made – and the lives of people in finance would be that much easier leaving us with the valuable free time we need to figure out how we can spend all our money. Blockchain may be the answer. This technology promises to significantly automate settlement tasks that were previously manual and subject to human error.
The disruptive potential of any technology can be judged by the number and caliber of investors who choose to stand behind it with their hard earned capital. Here are 3 startups that show just how much potential blockchain has.
Founded in 2014, Chain has taken in nearly $44 million in 3 funding rounds from 20 different investors. Chain solutions enable institutions to design, deploy, and operate blockchain networks that can power any type of asset in any market. Nasdaq plans to use Chain’s technology to manage transactions for shares of startups that are traded on private secondary markets, a place where Chain hopes to see its shares traded if everything pans out. Orange plans to use Chain’s technology to manage transactions on their mobile networks. In frontier markets like Africa for example, cell phones are used by 100s of millions of people as tools to conduct transactions. When you reach numbers of that scale, do you really need banks? If everyone is using mobile phones to transact and not using banks, why not just scale that platform and leave the banks out? Chain is not only focused on financial institutions but is also working with more than 3,000 developers who are using Chain’s technology platform to build their own apps.
Founded in 2014, Digital Asset has taken in a single funding round of $60 million from some of the biggest names in banking. This well-hyped start-up provides settlement and ledger services for both digital and mainstream assets and acquired 3 other companies last year (Hyper, Bits of Proof, Blockstack.io). The CEO of the firm, Blythe Masters, is the ex-CFO of J.P. Morgan and has been credited with being the creator of the credit default swap, a product that was responsible for the near destruction of the global financial system in 2008 but which also made banks lots of money. Just last month, the Australian Securities Exchange (ASX) made an investment in Digital Asset and is working to design a new post-trade solution for the Australian equity market. With ASX being one of the world’s top 15 listed exchange groups, it will be interesting to see what other exchanges climb into bed with Digital Asset.
R3 CEV is not your traditional startup that builds a product and then tries to sell it to all the big banks. Instead, they are taking a collaborative approach by creating the Distributed Ledger Group (DLG), a consortium partnership which now contains 42 of the world’s leading banks as seen below:
R3 is not looking to pilot their proposed solution for the blockchain offering. Instead, they are looking to establish a working group that can decide on a closed standardized implementation of blockchain for the banking industry that would leave everyone else out in the cold when it comes to influencing the direction this takes. Even though Citi, JPM, and Goldman are all backing competing blockchain startup Digital Asset that we discussed earlier, they still want their voice heard as part of the rapidly growing R3 consortium.
What’s most interesting about these 3 companies is that they are all being backed by a large number of very credible firms with deep pockets. It seems like everyone wants a piece of this new disruptive technology which is leading many technology authorities to speculate that this will be as impactful on the world as the Internet was when it first came out, at least in the area of finance. As R3 states on their website:
DISTRIBUTED LEDGER TECHNOLOGY HAS THE POTENTIAL TO CHANGE FINANCIAL SERVICES AS PROFOUNDLY AS THE INTERNET CHANGED MEDIA AND ENTERTAINMENT.