Is Blockchain Right for You? Bridging the Legacy Gap
In 2017, it has seemed as if every day there were new reports, predictions, stories, and articles on how innovative and disruptive blockchain technologies can be.
The allure of a decentralized ledger is powerful, especially in financial services. The great appeal may stem from the fact that there are multiple use-cases for the blockchain. It does not begin and end as the backbone for cryptocurrencies. In fact, the flexibility of the blockchain is a primary reason why investors and technologists alike have taken an interest in the technology.
There are many use cases for blockchain, but the one that could have the most impact on society is using it as the decentralized ledger for transactions of any type. Cryptocurrencies do not have to be developed for the blockchain to have a major impact on the payments landscape.
It’s clear that technology companies are growing to dominate the peer-to-peer payment landscape. These brands are making strides to take over payments for small businesses. This trend isn’t new. It all began with Paypal, but since then, many payment companies have popped up (Venmo, Moneris, Square, etc.). In addition to those financial technology companies, brands such as Facebook, Google, Apple, and Amazon are making their way into the payment landscape. If people can send each other money over an app they already use every day, what chance to banks have to win back the market?
Challenges to Technology Integration in Banks
Despite its growing popularity, the blockchain isn’t a magical solution that can solve all of a bank’s problems. There are challenges associated with upgrading any technology suite, but especially those that involve updating an outdated legacy system.
For a blockchain-based solution to integrate with a legacy system, all processes must be explicitly defined and automated. Any ad hoc inputs, reports, or processes need to be standardized and defined. No process can run on the blockchain if it requires human intervention. Blockchain-based solutions need to be able to update automatically for the decentralization to realize its full potential.
Internal processes and outputs must be clear and concise while meeting a business need. If there are ledgers with poorly defined purposes that are to be moved to a single, decentralized ledger, the blockchain solution will not be able to work until the purpose and inputs of those ledgers are defined within a greater system.
The other major challenge to creating an integrated blockchain solution is finding a place for manual processes and transactions. If a process is not automated, the blockchain cannot move it to a decentralized ledger. Banks will need to either automate these processes or find a place for them in the new, decentralized, automated system.
These challenges aside, there are several other considerations to be made when modernizing a legacy system with the blockchain. We will cover them next time in Part Two of this article.
