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/ Seven Questions /

Q1. You made a point in a blog that the blockchain is “80% business and 20% technology.” Do you think blockchain will alter the mechanisms of business or the very nature of business today? Actually, I have updated that statement, inspired by Yogi Berra. Now, I’m saying the blockchain is 90% business and 50% technology. Yes, it doesn’t add up to 100%. If it did, it would end up being like any old IT project. You can think of improving current processes as many big companies do. But if you do that—not changing anything and just using blockchain to support existing processes—you are just using a fraction of its potential benefits. Blockchain can be used, like the web, to reengineer and rethink processes. That’s why I say it’s 90% business. You have to figure out what is going to change in your business. The blockchain is here to force us to rethink existing business models. Blockchain technology is a little bit daunting today because it is still immature in some senses. We are still not too sure what’s going to scale and what’s not. We’re still in the early days of learning the limits of the technology. Right now, most of the innovation I’ve seen is taking place outside of large companies. That’s because large companies traditionally are challenged in 14


“Big banks can afford to invest in blockchain, but smaller banks need to use tried-and-true technology. We are not yet at a stage where they can buy an outof-the-box solution for payments or securities trading, but we may see that in two years” creating new business models. Big companies aren’t ver y good at acquir ing new customers. They are good at keeping customers. On the other hand, take Clearmatics, for example, out of the United Kingdom. The firm is a start-up that is creating a new, decentralized clearing network for overthe-counter derivatives. It will start out with zero customers. Some large companies do what I call “hand waving as a strategy.” They feel they have to indicate they are doing something in a space, and, depending on who you are, you can hold your audience captive for a while. Not picking on IBM in particular, but IBM is notorious for making announcements ahead of product deliveries. Customers will wait a year for IBM because it’s IBM. Start-ups will push the envelope, and some will not succeed. But that’s the nature of the field. Without ambitious start-ups, we’ll never know where the boundaries are. At present, banks aren’t feeling any of the blockchain start-ups. But everything starts small, and before you know it, it gets huge. PayPal began very small and is now a multibillion-dollar company that has expanded into lending. Banks may end up becoming back shops, no longer the front ends. Q2. Do you think that the banking industry has been going about blockchain research and development in the right way? I think ba nk s ought to be t a k ing a

December 2016/January 2017

portfolio approach to blockchain projects—not counting on one thing. Nearly all of the big banks are involved in the R3 CEV consortium, for example, and in bilateral or trilateral projects, or mini-groups. My message is: “That’s not enough.” In a consortium, everyone is moving on the same level and in the same direction. No one is going to one up the other when they are all playing the same game. Collaboration is a good way to test concepts. But you’re not going to get much competitive advantage out of collaboration. And banks do not like to share everything, so they will share the minimum. So in their portfolio, banks must leave some room for new and innovative projects that will give them a competitive edge. That is where creativity and real innovation come into play. I see some large companies now talking to startups, trying to find ideas that could move their needle. [Editor’s note: Subsequent to the interview, several large banks left R3 CEV, reportedly in part out of concern for too little competitive help for their involvement.] Q3. What about the smaller banks? Should they be looking at blockchain now, too? They will have to wait a bit longer. They don’t have big budgets to invest. There is no payback yet. Big banks can afford to invest in blockchain, but smaller banks and credit unions need to utilize technology that is tried and true. We are not yet at the stage where they can buy an

Illustration © George Diebold/Blend

the Age of Decentralization. Mougayar’s earliest take on blockchain was that it was just a new wrinkle in the internet or a new feature of the web. At the time, people still thought chief ly in terms of Bitcoin as well as other cryptocurrencies when discussing blockchain. Further study, however, changed Mougayar’s mind. “I saw that it would be very similar in impact to the web, which was transformational,” says Mougayar. Not that everything in the blockchain world has gone smoothly. Bitcoin has had its difficulties. Mougayar likes to quote Andreas Antonopoulos, a tech writer and entrepreneur, that Bitcoin “has died 120 times already and yet it’s still there.” But Mougayar is convinced that ubiquitous adoption of blockchain technology in financial services has become a “when,” not an “if.” The following summary of a far-ranging interview with Mougayar has been edited for length and clarity.

December 2016 January 2017 Banking Exchange  
December 2016 January 2017 Banking Exchange